What is Net Purchases?

Net purchases is defined as the gross amount of purchases made, less deductions for purchase discounts, returns, and allowances. The amount of net purchases may be materially lower than the amount of gross purchases; this differential can be used to measure the effectiveness of the purchasing department in obtaining price reductions.

What is the Net Purchases Formula?

To calculate the amount of net purchases within a reporting period, subtract the amount of all purchase discounts, returns, and allowances from the gross purchases made. The formula is as follows:

Gross purchases - Purchase discounts - Purchase returns - Purchase allowances = Net purchases