Purchase of raw material either on cash or credit by a manufacturing concern for production and then sale is termed as purchase. In case of trading concern, goods purchased for resale purpose is known as purchase. If a bookshop purchases books and stationery, they are termed as purchases but if it acquires furniture, then that is not treated as a purchase because the furniture is non-trading goods for a bookshop.
The word 'sale' denotes the exchange of goods or services for money either on cash or credit. However, it does not include the sale of assets like sales of old machinery and furniture.
The term stock denotes to unsold goods lying in business. It also includes the unused raw material in production. Opening stock is the amount of goods in hand at the beginning of the period where as closing stock means the stock of goods at the end of the year. There are following three types of stock or inventory.
- Stock of raw material : It refers to unused stock raw materials but to be used for production of finished goods in future.
- Stock of work-in-progress : It denotes to that stock of goods which are partly produced. It is also called as semi-finished goods. Raw materials in the process of production which are not yet been finished are stock of work-in-progress.
- Stock of finished goods : Those completed goods which are left to be sold at store are known as stock of finished goods.