Glossary
Net purchases
Purchases after taking off goods returned to suppliers and adding delivery costs in.
What it means
Purchases less returns outwards, adjusted for carriage inwards, giving the true cost of goods bought for resale.
Example
Purchases of RM20,000 less RM800 returns plus RM300 carriage inwards give RM19,500 net purchases.
Why it matters
It feeds cost of sales, so getting returns and carriage right keeps gross profit accurate.
In practice
Net purchases is a working figure inside the trading section of the income statement. It is not a single ledger account. It feeds the cost of sales calculation. Start with total purchases, subtract purchases returns (goods sent back to suppliers) and add carriage inwards, the cost of getting the goods to the business.
For example, purchases of RM10,000 less returns of RM600 plus carriage inwards of RM250 give net purchases of RM9,650.
Students often confuse it with gross purchases, the total before these changes. Carriage inwards is part of the cost of buying goods, so it belongs here. Carriage outwards, the cost of delivering goods to customers, is an ordinary expense lower down the income statement. Calculating net purchases correctly keeps cost of sales, and therefore gross profit, true to the cost of the goods available to sell.
If your gross profit is off because of returns or carriage, one of our teachers can find the slip with you in your own working. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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