Textbook Case Study Solved

Mr. Joseph started a trading business of selling readymade clothes. In the earlier period, he dealt only with cash, because he felt that would be risk-free. But, later on, he had to give credit period for his regular customers in order to retain them. For some customers, when they made bulk purchase, he offered them some discount. That brought him even more customers. But, some of his customers are not prompt in making the payment.

He expanded his business and employed few staff. As the credit transactions were numerous, he found it difficult to maintain properly. One of his friends, who is a Chartered Accountant advised him to maintain subsidiary books.
Discuss on the following points.

Question 1.
What could be the reason for Joseph’s feeling that dealing in cash is risk free?
Answer:
When we sell the goods, immediately we can get cash at once. So no debts had occurred in the business.

Question 2.
What type of discount is offered by Joseph?
Answer:
He offered trade discount.


Question 3.
Suggest some ways to Joseph for making his customers to pay on time.
Answer:
The cash discount may be offered by Joseph to his customers to pay on time.

Question 4.
Do you think that maintaining the subsidiary books will be useful to Joseph?
Answer:
Yes. it is useful.

  1. Sales book
  2. Sales returns book
  3. Purchases book
  4. Purchase returns book

Question 5.
What business documents are needed to maintain the subsidiary books?
Answer:

  1. Invoice
  2. Debit note
  3. Credit note