What expense category does buying inventory come under?

There are a few possible expense categories that buying inventory could come under. It could be classified as a cost of goods sold (COGS) expense, as inventory is considered a part of the cost of goods that a company sells. It could also be classified as an operating expense, as inventory is needed for a company to operate. Another possibility is that it could be classified as a capital expenditure (CapEx), as inventory is considered a long-term asset.

Cost of Goods Sold (COGS)

COGS includes the direct costs associated with producing the goods that a company sells. This would include the cost of the materials and labor used to create the product. If a company sells products that it has purchased from another company, the cost of the inventory would also be included in COGS.

Operating Expense

An operating expense is any expense that is incurred in the course of running a business. This would include the cost of inventory, as well as other expenses such as rent, utilities, and payroll.

Capital Expenditure (CapEx)

A capital expenditure is an expense that is incurred in the purchase of a long-term asset. Inventory would be considered a long-term asset, as it is something that a company expects to use for more than one year. CapEx is typically recorded on the balance sheet as opposed to the income statement.