Dolly is your friend, and she is a new entrepreneur. She sells ladies clothing via online. Her business goes well, and she has now 2 online stores. Dolly records every transaction that relates to the inflows and outflows of money because she thinks that they are the most important transactions from her business.

One day, she met you and excitedly told you about her business as well as her recording. As you listened to her, you were surprised that Dolly only records transactions that relates to the inflows and outflows of money. Also, you found out that Dolly does not prepare any financial statements.

Required:

1. 1. As Dolly’s friend, explain and advise Dolly of business transactions in accounting, i.e.: is it sufficient to record transactions that relates to cash only? In your explanation, provide at least 2 (two) examples. Hint: you may refer to the accounting equation.

2. 2. Explain to Dolly about the financial statements, specifically, what are financial statements, the purpose of each statement, which elements go to which statement, and how they are interrelated.

3. 3. Dolly is also interested to open a nail shop when the pandemic is over. Therefore, she asked you if there is any difference between a clothing store and a nail shop financial statements in terms of format and accounts. (For her clothing store, Dolly bought the clothes from a trusted supplier, thus, she does not need to produce the clothing herself). Hint: you do not need to construct the financial statements. However, you need to show your understanding of the type of business for the clothing store and the nail shop to enable you to have a clear explanation.