Final answer:
In trading businesses, specific accounts include the Purchase Account, Sales Account, Inventory Account, Cost of Goods Sold Account, Sales Returns, and Purchase Returns. These accounts are essential to record transactions related to the buying and selling of inventory, which are central activities in trading businesses, and are fundamental for assessing business profitability
Step-by-step explanation:
Accounts specific to a trading business include those that reflect the buying and selling of inventory, which is central to the operations of such companies. Here are a few key accounts:
- Purchase Account: This account records the total purchases of merchandise for resale purpose. It includes both cash and credit purchases of goods.
- Sales Account: This account reflects the revenue from the sale of goods. It is credited when goods are sold, whether on cash or credit.
- Inventory Account: It represents the value of the stock of goods at the beginning and end of an accounting period. This account is essential for calculating the cost of goods sold.
- Cost of Goods Sold (COGS) Account: This account is used to record the direct costs attributable to the production of the goods sold by a company. This includes the cost of the materials and labor directly used in creating the goods.
- Other accounts such as Return Inwards or Sales Returns Account, and Return Outwards or Purchase Returns Account may also be used to record the goods returned by customers and returned to suppliers, respectively.
These accounts are crucial for assessing the profitability of a trading business and for maintaining accurate and timely financial records.