How Cash Purchases Are Recorded on a Company’s Income Statement

Cash purchases are part of a company’s operational expenses. So where can you find them on a business’ financial documents?

Key Takeaways

• A company’s income statement includes cash purchases in the expenses section under operating costs, but it doesn’t indicate when revenue is collected or expenses are paid.
• The cash flow statement records cash purchases for financing, investing, and operating activities.
• But for the greatest detail on cash purchases, look to a company’s general ledger.

Income Statement

Cash purchases do not appear directly on a company’s income statement, or “profit and loss statement.” The income statement is meant to show a business’ financial performance during a specific accounting period. Cash purchases are just one part of the sum total of the operating costs, which is found in the statement’s expenses section.

Important

One of the limiting features of the income statement is that it does not break down the specifics of when revenue is collected or expenses are paid.

Cash Flow Statement

Cash purchases are instead recorded more directly in a company’s cash flow statement, which shows the total cash inflow and outflow of the company over a period of time. The cash flow statement further differentiates among totals of cash purchases for financing activities, investing activities, and operating activities.

General Ledger

For individual entries of cash payments, you need to look in the general ledger, also called an “accounting ledger.” It uses double entry accounting, a method in which each transaction must have at least one credit (money incoming) and one debit (money outgoing) that balance out. The ledger is where you will find each cash purchase detailed.

Role of the Income Statement

In financial accounting the income statement is designed to show summaries of financial activity on a quarterly or an annual basis. These summaries are drawn from the general ledger. There may be footnotes in an income statement that describe specific cash purchases, but this is not a reliable source for line-item details.

Operating Section of the Income Statement

As stated above, cash flows are built into the revenue and expenses portion of the operating section of the income statement. Any cash purchase made in the course of normal operations increases the recorded expenses of the company.

With larger, exchange-listed companies, the expenses portion may be broken down into more-specific subcategories. Even in these cases, specific cash purchases are not recorded. The aggregate of all cash purchases and other cash outflows is instead part of the figures listed in the expenses portion.

What Is an Income Statement?

A business’s income statement is intended to provide a snapshot of a company’s financial performance during a defined period of time, usually quarterly or annually.

Do Cash Purchases Appear on an Income Statement?

Yes, but only indirectly. They are part of the total of the company’s operating costs, which you can locate in the statement’s expenses section. They are not detailed individually on the statement.

Where Is the Best Place to Find a Record of a Company’s Cash Purchases?

A company’s cash purchases are only broken out individually in its general ledger, though they are included indirectly as part of both its income and cash flow statements.

The Bottom Line

A business’ cash purchases are included as part of its total operating expenses on its income statement, but they are not listed individually. For that you need to look at the general ledger. The company’s cash flow statement also includes them, but it too only provides totals. However, those totals are divided into three categories: financing, investing, and operational activities.