Solution 3.4 

What four accounts make up the asset of stock and why? 

For businesses buying and selling products the selling price is normally set at a price above the cost price otherwise the business would not make a profit. Stock is bought at one price, the purchase price, and sold at another (normally higher) price, the selling price. The stock account is divided into four separate accounts as follows.

• Sales account - Detailing all stock sold at selling price                                  
• Sales returns account - detailing all stock returned at selling price                
• Purchases account - detailing all stock purchased at cost price.                     
• Purchases returns account - detailing all purchases returned at cost price