A MUST KNOW CHALLENGE for STUDENTS

Goods destroyed by fire is credited to nullify the effect of debit on account of purchases of such goods on profit & loss account. To give the effect of actual loss, the profit & loss is again debited by the amount of actual loss.

Basically trading account is prepared to show how much profit / loss is made by the firm from trading of goods. So if goods purchased are lost due to fire this loss is not due to trading of goods and hence it is not charged to trading account. This loss is shown in P&L A/c. Same is the case with Consignment A/c where consignment account is prepared to shown profit / loss occured by consigning the goods. Correct me if i am wrong.

The credit is given because as the goods are damaged it is no longer saleable. It should not be a part of closing stock and hence it is credited to the trading a/c separately.

It wont result in increasing the profit because the debit is aleady given for the Purchase or if it already existing in the Op. Stock.

This will nullify the account.