Goods destroyed by fire should be credited to purchases account.Becz due to fire the the actual expense of purchase decreased by that amount loss by fire. And now the goods lost by fire will be debited to loss by fire account To purchased account.

Goods destroyed by fire should be credited to:

The correct answer is option 'A', which means that goods destroyed by fire should be credited to the Goods lost by fire account. Let's understand why this is the correct answer.

Explanation:

When goods are destroyed by fire, it is a loss for the business. The value of the goods is no longer available for further use or sale. Therefore, it is necessary to account for this loss in the financial records of the business. This is done by creating a separate account called the Goods lost by fire account.

Reasoning:

- Goods lost by fire account is a nominal account. It is used to record losses incurred due to fire or any other unforeseen events that result in the destruction of goods.
- The credit entry in the Goods lost by fire account represents the value of the goods destroyed.
- By crediting the Goods lost by fire account, we are acknowledging the loss and reducing the value of the goods in the books of accounts.
- This loss is treated as an expense for the business and is deducted from the profits.
- The Goods lost by fire account is closed at the end of the accounting period by transferring the balance to the Profit and Loss account.
- This ensures that the loss is properly accounted for and reflected in the financial statements of the business.

Other options:

- Sales account (option 'B') is incorrect because sales represent the revenue earned by selling goods, and it does not account for the loss of goods due to fire.
- Purchase account (option 'C') is incorrect because the purchase account is used to record the cost of goods purchased, and it does not account for the loss of goods due to fire.
- Cash account (option 'D') is incorrect because the cash account is used to record cash inflows and outflows, and it does not account for the loss of goods due to fire.

Conclusion:

In conclusion, goods destroyed by fire should be credited to the Goods lost by fire account. This account is used to record the loss of goods and is treated as an expense for the business. By properly accounting for the loss, the financial statements of the business provide an accurate representation of its financial position and performance.