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Transaction

Reviewed by Anjaneyulu | Updated on Sep 30, 2020

Catalogue

Introduction

In accounting, the business transaction is an occurrence which must be measured in terms of money and which ultimately affects the business' financial position. A transaction is a commercial occurrence that influences the financial statements of a company monetarily and is reported as an entry in its accounting records.

Examples of Transactions

  • Pay for services provided or products shipped to a retailer.

  • Pay cash and a notice to a seller to obtain ownership of a property previously owned by the seller.

  • Charge for hours of work to an employee.

  • Receive payment from a customer in return for the supplied goods or services.

A high-volume transaction may be reported in a specific document, such as billing to a client, which is then compiled and added to the general ledger. Alternatively, smaller-amount transactions are reported directly to the general ledger.

Characteristics

From the discussion above, we may point out the following five important characteristics of a valid business transaction. They must be taken care of by bookkeeper or accountant before entering the transaction in the log.

  • It's a monetary thing.

  • It impacts the firm's financial position.

  • This belongs to the company but not to the owner or any other person who operates the business.

  • An individual initiates it with authority.

  • It is supported by the source document.

Types

Most companies offer consumers a product or service to make money. It can be much more complicated than that simple model. While some companies serve as the middle man from supplier to the customer, others sell to other businesses, and some organizations don't adopt a financial model that generates profit for them. All of these business models contribute to different types of transactions.

  • Business to business
  • Wholesaler to retailer
  • Wholesaler to consumer
  • Retailer to customer
  • Consumer to consumer

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