What is the difference between purchases and cost of sales.?

Question

If purchases for June 2004 was R42 000, what is your cost of sales for June 2004?

Answer 1

To my understanding from Cost Accounting purposes, the cost of sales include purchases and applicable overheads to materialise the sales. This means the landing cost of purchases plus cost of marketing/sales, packing/re-packing, proportionate administrative overheads to give effect to the sales, delivery cost for sales, advertisement expenses-if any,......etc. So purchases denotes only landed cost at your warehouse, store or for value addition work place. And when selling overheads are added to such purchases, it becomes the cost of sales for an entity.

Answer 2

Purchases are the raw materials or inventory that you bought. They go into your inventory until they are sold. Inventory is a current asset in the balance sheet. One day (hopefully soon), your inventory will be sold, and the cost of these purchases will become your cost of sales. Until you have a sale, you can't talk of cost of sale.

So if purchases for June 2004 was R42 000, and you sold nothing in June, your cost of sales was 0. The stuff you purchased will just be sitting in inventory. If you sold everything you purchased in June, then your cost of sales was R42 000. If you sold half of what you purchased, your cost of sales was R21 000.

Answer 3

I am not sure of the question. In business you have the following:

Starting Inventory
Plus Purchases

Which gives you:
Available for sale
Deduct Ending Inventory

That gives you the cost of goods sold for the period.