Frank Wood
Business accouning…
Special meaning of "Sales" and "Purchases"
It must be emphasised that 'Sales" and "Purchases" have a special meaning in accounting when compared to ordinary language usage.
"Purchases* in accounting means the purchase of those goods which the firm buys with the prime intention of selling. Obviously, sometimes the goods are altered, added to, or used in the manufacture of something else, but it is the element of resale that is important To a firm that deals in typewriters for instance, typewriters constitute purchases. If something else is bought, such as a motor van, such an item cannot be called purchases, even though in ordinary language it may be said that a motor van has been purchased. The prime intention of buying the motor van is for usage and not for resale.
Similarly, "Sales" means the sale of those goods in which the firm normally deals and were bought with the prime intention of resale. The word "Sales" must never be given to the disposal of other items.
Failure to keep to these meanings would result in the different forms of stock account containing something other than goods sold or for resale. uqte t
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