Reason for Deducting Monetary Value of Goods Given at Charity from Purchase in Financial Statement

1. Matching Principle:
- According to the matching principle in accounting, expenses should be recognized in the same period as the related revenues. When goods are given to charity, they are essentially being used for a charitable purpose and not for generating revenue. Therefore, deducting the monetary value of goods given at charity from purchases helps in matching expenses with the revenues they generate.

2. Consistency:
- Deducting the value of goods given at charity from purchases ensures consistency in financial reporting. By following this practice, companies can provide accurate and comparable financial statements over different periods.

3. Transparency:
- Deducting the value of goods given at charity from purchases helps in maintaining transparency in financial reporting. It clearly shows the impact of charitable activities on the company's financial performance and helps stakeholders understand the true cost of goods sold.

4. Compliance with Accounting Standards:
- Many accounting standards and principles require companies to account for charitable donations separately from regular business activities. By deducting the value of goods given at charity from purchases, companies can comply with these standards and provide a true and fair view of their financial position.

5. Impact on Inventory Valuation:
- Deducting the value of goods given at charity from purchases affects the calculation of cost of goods sold and inventory valuation. By deducting these charitable donations from purchases, companies can accurately reflect the cost of goods sold and the value of inventory on hand.