Glossary
Purchases
Goods bought by a business specifically to sell on to customers.
What it means
The cost of goods bought for resale during a period, recorded in the purchases account.
Example
A shop buying RM20,000 of stock to sell records RM20,000 of purchases.
Why it matters
Purchases are the starting point for cost of sales; only goods for resale count, not assets for keeping.
In practice
Purchases appear in the trading section at the top of the income statement, where they form the core of the cost of sales calculation. Each credit purchase is posted to the debit of the purchases account and the credit of the supplier's account. The word has a strict meaning. Only goods bought for resale count. A shop buying RM5,000 of stock to sell records purchases of RM5,000. If the same shop buys a RM5,000 shelving unit to display that stock, that is not purchases. It is a non-current asset.
This is the distinction that trips students up most. Purchases are goods intended to be sold on. Equipment, fixtures or vehicles bought for long-term use are capital expenditure, recorded separately. Posting an asset as purchases would understate profit in the current year and leave the statement of financial position missing an asset.
If you often misclassify items between purchases and assets, one of our teachers can sort a typical list with you and explain the reason for each. 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.
Need purchases explained properly?
Tell us your child’s year and board on WhatsApp and we will suggest a first lesson. One-to-one and online, from RM75/hr.
One-hour paid trial · Same-day reply