![]() cash transactions and credit transactions.In context of accounting, business and finance, the transactions may be classified as: It is initiated by an authorized person.It belongs to business not to the owner or any other person managing the business.It affects financial position of the business.Characteristics of a business transactionįrom above discussion, we can point out the following five important characteristics of a valid business transaction that every bookkeeper or accountant must take care of before entering the transaction in the journal. Usual examples of source documents include sales invoices, purchase invoices, cash receipts, payment vouchers, statement of accounts, bills of exchange, promissory notes and any other document containing the basic transaction details which can be presented as a proof of valid transaction. A source document is a document that provides basic information needed to record a transaction in the journal. Since each transaction impacts financial position of the business, the bookkeeper or accountant must make sure that it has been authorized by a responsible person and is properly supported by one or more source documents before recording it in the journal. Undoubtedly, this event may be of great benefit for the company’s business as a whole but we cannot assign a monetary value to it so it is not a business transaction and therefore cannot become a part of accounting records.Įach transaction is recorded by making a journal entry by the bookkeeper or accountant. For example, the CEO of a company delivers a motivational lecture to the employees. There may be numerous events and occurrences in a business to which we cannot reliably assign a dollar value and, therefore, cannot be called business or financial transactions. Only those events that can be measured in monetary terms are included in accounting records of the business. ![]() This event is also a transaction because it has a monetary value of $400 and has a financial impact on your business. Similarly, you pay $400 cash to your salesman as his monthly pay. So it is a valid business transaction, which you must make part of your business’s accounting record. It is an event that you can measure in terms of money and that impacts the financial position of your business. For example, suppose, you run a merchandising business and you sell some goods to a customer for $500 cash. ![]() In accounting, the business transaction (also known as financial transaction) is an event that must be measurable in terms of money and that essentially impacts the financial position of the business. Characteristics of business transaction.
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