A purchase is the act of buying or acquiring goods, services, or assets in exchange for money or its equivalent. The entity or person who makes a purchase is known as the buyer or purchaser, while the one who sells the goods, services, or assets is known as the seller.
Purchases can be made on different scales, ranging from everyday transactions (like buying groceries, clothing, or digital services) to significant business investments (like acquiring machinery, real estate, or even another company).
In accounting, a purchase can refer to the acquisition of an asset, such as equipment or real estate, that will be used in a business’s operations. These are often categorized as capital expenditures and are recorded in the company’s balance sheet.
For example, if a restaurant buys a new oven for their kitchen, that would be considered a purchase. The oven would then be listed as an asset on the restaurant’s balance sheet and its value would be depreciated over time.
Example of a Purchase
Let’s consider an example of a purchase in a business context.
Imagine you’re running a small bakery, and you’ve decided to purchase a new industrial oven to increase your baking capacity. The oven costs $5,000.
Here’s how this purchase would play out:
- Finding the Product: You research various models of industrial ovens, comparing features and prices, and you decide on a particular model that suits your needs.
- Agreement to Purchase: You agree to buy the oven from the supplier for the stated price of $5,000.
- Payment: You pay the supplier the $5,000. This could be an immediate cash payment, or it could involve a payment plan or credit terms, depending on the agreement with the supplier.
- Receipt of the Product: The oven is delivered to your bakery and installed.
- Recording the Purchase: In your business accounting, you record the oven as a capital asset on your balance sheet. The $5,000 would be considered a capital expenditure, an investment in your business. This oven would be depreciated over its useful life.
This new oven, while a substantial expense, allows your bakery to produce more goods more efficiently, thereby increasing your potential sales and profits. This is an example of how a purchase can be an investment in the growth of a business.