What is a purchase?

Purchases are all types of goods and services that you purchase for the company. This can happen in different ways, from different places and for different reasons. All of this can affect both the business and the accounting in different ways.

It is important to understand that the reason for a purchase can have a major impact on how the purchase should be handled. A simple example is if you go and buy a plank with the company’s money, it must be handled in different ways if you intend to use the plank as a shelf in the office or if you are going to sell the plank on.

What can I buy for the company?

In principle, you can buy anything for the company as long as it can be clearly linked to the company’s operations and needs. If, for example, you buy something that can be classified as private, you cannot deduct the VAT on the purchase.

What is the difference between expense and cost?

The words expense and cost are used many times interchangeably but actually have different meanings and have a major impact on accounting. By expense is meant the acquisition value of what the company bought when the invoice is received. While cost refers to the value of a service that the company has consumed or credited during a certain period. The cost can be seen as an accrued expense.

Example advance payment

A trip is bought and paid for in January, this is when the expense is incurred. The trip itself then takes place in May, which is when the cost is incurred and the money is used up. The time between the cost and the expense means you have a claim against the seller, you have paid for the trip but you have not received it yet.

Example late payment

An item is purchased against an invoice with 30-day payment terms. Here, the cost will occur immediately when you receive the item, while the expense will come later when the invoice is paid. The time between the issue and the cost, you will have a debt to the seller because you received the item but have not yet paid for it.