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distinguishing between purchase and expense
Posted: 20-07-2010 01:38 PM   [ Ignore ]
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sometimes i end up fighting with my colleague over classifying a spending. so i wanted to request u to shed some light on how to exactly distinguish between purchase and expense. i know the basic concept but we often come across a few rather confusing ones.
thanks in advance

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Posted: 20-07-2010 03:40 PM   [ Ignore ]   [ # 1 ]
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By purchase and expense do you mean capital and revenue expenditure?

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Ed smile

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Posted: 20-07-2010 07:14 PM   [ Ignore ]   [ # 2 ]
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Or do you mean goods for resale (purchases) versus goods not for resale (expense)?

Perhaps if you gave us an example of one you are finding ambiguous.

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Posted: 21-07-2010 08:39 AM   [ Ignore ]   [ # 3 ]
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u r right jamie. Im actually referring to goods for resale vs goods not for resale. what is the most accurate way to distinguish between them. because some of the items are not directly for resale but used somewhere along the process. say for instance, car paint used to paint the cars in the process of repairing in a workshop/garage.

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Posted: 21-07-2010 03:32 PM   [ Ignore ]   [ # 4 ]
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It is a question of fact.
Establish what you are buying the goods/services for.  Then allocate the cost/code accordingly.
If something has a dual purpose then split appropriately (if material - i.e. worth the effort!!).
In your example, if you are a garage and you are painting a customer’s car then it is purchases/cost of sales.
If you are repainting your own business’s car it will be the expense of vehicle repairs.

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