What is a Purchase?

//What is a Purchase?
What is a Purchase? 2017-10-09T07:45:20+00:00

Definition: A purchase means to take possession of a given asset, property, item or right by paying a predetermined amount of money for the transaction to be completed successfully. In other words, its’ an exchange of money for a particular good or service.

What Does Purchase Mean?

What is the definition of purchase? A purchase is a routinely operation carried by both individuals and corporations. The purpose of this financial transaction is to transfer the ownership of a piece of property physical, intellectual, virtual or else. By purchasing the property, the owner has the right to use it or dispose of it according to his will and purpose.

The purchase activity is normally a formal procedure when it comes to company purchases. Smaller purchases are more commonplace than larger purchases. As such, they require less analysis and thought.

Purchases can be made in cash or credit. Both typically transfer ownership when the transaction is initiated even though the latter doesn’t pay cash for good or service until some date in the future.

Let’s look at an example.

Example

Inspiration Clothing Co. is a company that sells apparel for women. The company business model is fairly straightforward; they have a supplier based in Los Angeles, called Wholesalers, Inc., that provides all the merchandise for Inspiration. The company has a purchasing department that deals with Wholesalers, Inc. and places purchase orders to keep the company stores fully inventoried. They have a pre-negotiated credit period of 15 business days after the order is received. When is this purchase actually made?

According to our concept, a purchase is a financial operation where goods and services are exchanged for consideration. In this example, there are two crucial moments, the moment in which a purchase order is issued by Inspiration and the moment in which that order will be paid for. In this case, Inspiration takes ownership of the goods and gives Wholesalers consideration in the form of a receivable or IOU. Thus, the transaction actually takes place when Inspiration receives the goods.

Keep in mind that this can vary depending on the credit and shipping terms.

Summary Definition

Define Purchases: Purchase means to pay for and take possession of a good or receive a service.