Business Transactions

  • A business transaction is an economic activity of the business that changes its financial position. A business transaction is a transaction that involves an economic activity, involves either inflow or outflow of goods, services or cash, involves changes that may be quantitative or qualitative etc.
  • On the basis of payment involved a transaction can be classified into cash transactions and credit transactions.
  • Cash transactions are the transactions that involve immediate receipt or payment of cash on the purchase or sale of goods, services and assets.
  • Advantages of Cash Transaction are that It is the quick and convenient way of transaction, etc.
  • Disadvantages of cash transaction are that security and storage of cash can be risky and expensive, etc. Cash transaction may be asset transactions, goods transactions, service transactions, debt transactions, etc.  
  • Credit Transactions involve the purchase or sale of goods or services in present with a promise to pay or deliver in the future. When the name of the party from whom goods are purchased or sold is not given in description of a transaction, then it should be treated as cash transaction.
  • On the basis of entity involved transactions are classified into external and internal transactions.
  • External Transactions are the transactions in which economic activities take place between two independent business entities.
  • Internal Transactions are the transactions in which economic activities take place within the business like depreciation charged on fixed assets.
  • Special Transactions are the transactions which are neither cash nor credit in nature, but are recorded in the books of accounts. Goods destroyed by fire, is the example of special transaction.
  • Non-Economic Transactions are the transactions that cannot be measured in terms of money, i.e. do not involve receipt or payment.
  • In Accounting Terminology, the bills that provide evidence to a transaction are known as ‘Source Documents’. An event is the consequence or result of a transaction.
  • Events can be further classified as monetary events and non-monetary events.  


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