A business transaction is any event or happening measured in terms of money that has an effect on the condition or results of operations of a business entity. Each business transaction leads to a balanced effect to a minimum of two accounts. as an example, the acquisition of a computer for cash could be a business transaction. This transaction increases the asset computer and reduces the asset cash. it’s a balanced effect and in accounting, this transaction is recorded as a debit to asset computer because it’s increased and a credit to asset cash because cash is decreased.
On the opposite hand, if the pc is bought on account, rather than a decrease during a set rise in a liability, accounts payable is recognized. the rise in liability is recorded as a credit to payable. As business transactions happen. the effect (increase or decrease) of the transaction on the accounting elements are evaluated. Analyzing is that the process of evaluating the consequences of business transactions on the accounting elements with accounting Golden Rules.
Analyzing is that the commencement within the accounting process. it’s important because if the analysis of transactions is wrong, wrong journal entries are going to be recorded within the general journal and this error are carried over to the financial statements. it’s therefore imperative that the right transaction analysis made so as to reach accurate financial reports. Remember that these financial reports are those utilized by users of economic information in making decisions for the business.
Types of Business Transactions
Transactions happen continuously and repetitiously as a business entity goes through its usual operations. Every day, business entities pay expenses, purchase assets, perform services, sell products, borrow money and incur liabilities, collect receivables, pay liabilities, allow owners to withdraw funds for private use, etc. equivalent transactions happen throughout the life of the business and also the same transactions are analyzed, recorded, reported and interpreted within the accounting process. Accounting is precise and specific. For a singular transaction, an equivalent analysis is completed, and therefore the same general journal entry is created within the accounting records.
For example, if the owner invested cash to begin a business, the debt is usually to asset cash and therefore the credit is usually to capital. For a similar transaction, the overall journal entry is often equivalent in spite of what percentage limes constant transaction occurs.
Some typical business transactions are summarized below
Investment by the owner
Cash investment (cash is received from the owner as an investment within the business)
Non-cash investment (non-cash assets like equipment, furniture, tools, etc. are invested by the owner)
Performance of service or sale of a product
For cash (cash is received from the customer for services rendered or products sold)
On account (cash isn’t received from customers when services are rendered or when products are sold; customer can pay at a later date)
With deposit and balance on the account (cash payment is received from the customer and therefore the remainder is to be paid at a later date). Every Business Net working capital has different aspects. Get some Terminologies of Mortgage for better understanding.
Purchase of asset Business Transaction
For cash (cash is paid to totally buy asset bought)
On account (no cash is paid at the time of purchase of asset; payment to be made at a later date)
With deposit and balance on the account (cash deposit is formed and therefore the remainder is to be paid at a later date)
Collection of customer account (accounts receivable)
For cash (cash is received from the customer to totally settle the account)
With note (customer’s note is issued to settle account)
Payment of supplier accounts (accounts payable)
For cash (cash is paid to supplier/creditor to completely settle accounts payable)
With promissory note (issuance Of note to settle accounts payable)
- Payment of expense (cash is paid to pay expenses)
- Withdrawal of assets, usually cash, for owner’s personal use
- Payment of dividends, for a corporation