Purchases are expense or inventory

Purchase is basically an inventory and therefore debit in the books accounts. The purchases then charge to the income statement at the period end . There are two ways of charging purchases to expenses one is directly charged to profit and loss at the period end and adjusted by the physical inventory count by debiting inventory and crediting profit and loss at the period end. The other way is to charge the purchases to stock account and stock account regular charged cost of good sold when the goods are sold. The stock account is showing the stock in hand figure at all time.


The purchases account maintained separate from the inventory account because the inventory basically represent the unsold good in hand where the purchases account shows the whole purchased made during the year. Therefore the purchases is basically an inventory but will be expense out either during the period or at end of the period and unsold purchases will form part of closing inventory.