Pearlita is a trader. She buys and sells electronic goods. She maintai

1.	Pearlita is a trader. She buys and sells electronic goods. She maintains double entry book – keeping. She purchases and sells goods both on cash and credit bases. If the purchased goods are not in good condition, she sends them back to her supplier. At the same time, she also accepts if her customers return the goods sold to them, when the goods are not in good condition. She maintains a bank account for her business. She receives and pays money through bank transactions.(i) Why does she maintain double entry book keeping?(ii) Do all the business units engage in credit transactions?(iii) Can you think of some business units that have only cash transactions?(iv) Is it necessary for Pearlita to maintain a separate bank account for business?
Answer» (i) In this system the two aspects of each transaction are recorded in the books of account. This helps in checking the accuracy in accounting. (ii) No, she purchases and sells goods both on cash and credit basis. (iii) Yes, she has to spend money for expenses and capital also. Nominal accounts also maintained. (iv) Yes, she should maintain a bank account for her business.

Pearlita is a trader. She buys and sells electronic goods. She maintains double entry book – keeping. She purchases and sells goods both on cash and credit bases. If the purchased goods are not in good condition, she sends them back to her supplier. At the same time, she also accepts if her customers return the goods sold to them, when the goods are not in good condition. She maintains a bank account for her business. She receives and pays money through bank transactions.(i) Why does she maintain double entry book keeping?(ii) Do all the business units engage in credit transactions?(iii) Can you think of some business units that have only cash transactions?(iv) Is it necessary for Pearlita to maintain a separate bank account for business?

Answer»

(i) In this system the two aspects of each transaction are recorded in the books of account. This helps in checking the accuracy in accounting.

(ii) No, she purchases and sells goods both on cash and credit basis.

(iii) Yes, she has to spend money for expenses and capital also. Nominal accounts also maintained.

(iv) Yes, she should maintain a bank account for her business.