Transactions are monetary exchanges between two parties that are recorde in accounting. Accurately recording transactions is important because it provides up-to-date information about a company’s financial position.
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This helps ensure that the company is charging and being charge accurately. So accounting records include ledgers, journals, and supporting documents, such as checks.
In accounting, we use ledgers, journals, and supporting documents like checks to document these transactions. This documentation provides real-time information about a company’s financial status, enabling them to charge and be charge accurately.
3 Types of Accounting Transection
- Cash transactions
- Non-cash transactions
- Credit transactions
So, there are 3 types of accounting transactions: cash transactions, non-cash transactions and credit transactions
Cash transactions are those that are settle at the time of the occurrence of the transaction. Credit transactions are transaction that allow customers to pay for goods/services after a certain period or on a certain date
Non-cash transactions include trading and exchanging goods or services without the involvement of any cash. The customer’s ability to cover the cost of the item or service available is an important consideration in determining whether a transaction is a cash or credit
One fundamental concept underlying present-day bookkeeping and accounting is double-entry accounting. This means that every financial transaction has equal and opposite effects in at least two different accounts. This helps ensure accuracy and consistency in financial record-keeping.
Cash transactions
These transactions involve the exchange of cash and are the most common type of transaction.
So paying for products or services with cash, sending a check, or transferring money online are all examples of cash transactions.
The accounting records for cash transactions typically include the date of the transaction, the amount, the purpose of the transaction, and the account debited or credited.
Non-cash transactions
It does not, in essence, involve the exchange of money. They include the exchange of non-monetary assets such as property, equipment, or services rather than cash. Non-cash transactions might also include those in which payment is made later.
Non-cash transactions include the purchase or sale of equipment, the exchange of services, and the issuance of promissory notes.
Transactions on credit
It entails the usage of credit, which means that payment is postpone until a later period. This type of transaction is frequently use when a company needs to make a purchase but does not have cash on hand.
Credit transaction accounting records normally include the date of the transaction, the amount, the purpose of the transaction, and the account debited or credited.
Key Points
- Business transactions are day-to-day activities incurred in running a business, such as sales, purchases, payments, and advertising
- Non-business/non-trading transactions are social service-oriented activities like donations, subscriptions, and contributions to organizations
- Personal transactions are expenditures made by an individual for personal reasons, such as birthdays, marriages, festivals, and education
- Events in accounting are classified into monetary and non-monetary categories
- Transactions are important elements in accounting and are recorded in the books of accounting
- Every transaction will cause a financial change and may be visible or invisible
- Transactions may be classified based on institutional relationship, exchange of cash, visibility, and objectivity
Differences between Events and Transactions
| Events | Transactions |
| Any occurrence that may or may not have an impact on the financial change of the business. | An act that involves an exchange of goods and services for a value between two or more parties, entities, or accounts. |
| Can impact a business directly or indirectly. | Always have an impact on the financial situation of the business either directly or indirectly. |
| Results of transactions. | Deliberate acts performed by the business entities. |
| Only financial events are recorded in the books of accounts. | All transactions are recorded, as and when they take place, in accounting. |
| Examples of events include natural disasters, lawsuits, or changes in government policies. | Examples of transactions include sales, purchases, and investments. |
| Events can occur without a corresponding transaction. | Transactions always correspond to an exchange of value. |
| Events can be classified into financial and non-financial. | Transactions are always financial in nature. |
| Events may or may not have a monetary value attached to them. | Transactions always involve a monetary value. |
| Events are not necessarily recorded in accounting books. | Transactions are always recorded in accounting books. |
| Events are not necessarily taxable. | Transactions may be taxable. |
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