Difference Between Purchases And Cost Of Goods Sold

The term Cost of Goods sold and purchases are mainly used in trading account, and i guess you must have been thinking about the difference between purchases and cost of goods sold (COGS). The difference between them are stated below.

Purchases are goods purchased by the company and are recorded at cost which represents the cost of that particular good or service purchased only while Cost of Goods sold represents the cost of the goods you sold which includes material cost, labour cost and overheads incurred in bringing that product to a condition that it can be sold.
I will be illustrating the above definition with 2 examples below:
You bought wood from the market at a cost of $100, that will be your purchase and will be recorded at $100 in your books. Your plans are to us the wood to make a chair therefore you hire a guy for it on $10 per hour. The guy took 24 hours to make the chair which is 24 hours multiplied by $10 equals $240. Now ignore overheads here because allocation of overheads is an entire different topic. Lets keep things simple and say overheads cost is $150 which represents all other expenses directly related to the manufacturing of that chair.
Now, you sold the chair for $500, remember your purchase was $100 wood but your cost of goods sold in this case would be as follows:
Material Cost = $100
Labour Cost = $240
Overheads = $150
Cost of Goods sold (100+240+150) = $490
Sale Price = $500
Your Profit (500–490) = $10
The Second illustration
A business started on 1st Jan 2009 , purchased inventory costing $100,000 during the year. But at the year end inventory costing $20,000 is still unsold. What will be the Cost Of Goods Sold?
Answer:
Purchase of goods for resell = $100,000
Less : Cost of unsold stock = ($20,000)
Cost of goods sold will be = $80,000
Next year the unsold stock of last year will become the opening inventory of new year. If this year business purchases inventory $150,000/- and after selling old and new stock it has still unsold stock of $25,000/- What will be the COGS?
Opening inventory of last year = $20,000
ADD: Purchases inventory = $150,000 
LESS: Unsold stock year end= $(25,000)
Cost of good sold will be $145,000
In other words purchases will be equal to COGS if business manage to sell all of its stock during the year, every year. But this never happens with majority trading business. If a business has unsold stock at the beginning and ending this must be adjusted to calculate COGS.