Understanding Transaction
Understanding transaction:
Many things are happening in our daily
life. Similarly, various incidents are happening in the organization. But not all events are considered transactions. If an event is to be considered a
transaction, it must be considered in 3 criteria. These are:
(1) Measurable in terms of money.
(2) Each transaction must have 2 sides (Debtor.
and Creditor.)
(3) The transaction must change the economic condition of the organization.
Incidents
|
Measurable in terms of money
|
The transaction must have 2 sides
|
The transaction must change the economic condition
|
Comments
|
Hiring
an employee for salary $1000.
|
a
It is being measured by $1000.
|
a
It has two sides such as owner and employee.
|
r
It doesn’t change the economic condition of organization yet now.
|
No Transaction.
|
Paid
salary $1000 to the employee.
|
a
It is being measured by $1000.
|
a
It has two sides such as owner and employee.
|
a
It changes the economic condition by decreasing cash and increasing
expenses.
|
Transaction
|
Motivating
employees
|
r
The incident is not
measurable in terms of money.
|
a
It
has two sides like as owner or leader and employee.
|
r
It doesn’t change the economic condition of organization yet now.
|
No Transaction
|
Paid
$100 to an employee for motivating as a performance bonus.
|
a
It is being measured by $100.
|
a
It has two sides such as owner and employee.
|
a
It changes the economic condition by decreasing cash and increasing
expenses.
|
Transaction
|
Independent: An occurrence can have a connection
with other activities but it is not appropriate to classify these two
occurrences as the same occurrence, one being distinct and independent of
another.
Invisible
transaction: A
trade that brings financial transition is not always only a tangible trade, it
can even be invisible. Even the unseen incident may be a transaction.
Historical
events: Accounting is basically about preserving the events of
the past. So transactions are largely dependent on past events. It
maintains the historical cost principle of accounting.
Types of transaction:
External transaction: An external transaction is a commercial agreement between a corporation and a third entity outside it. Therefore, an ongoing agreement requires two individuals or more.
Example: Purchasing goods from outside of the organization worth $100.
Internal transaction: An internal transaction is a business transaction that does not involve any third party or outside organisation. There is no alien abductee transaction involving two parties.
Example: The value of a machine has decreased due to using.
Cash transaction: The transactions that are concluded for cash directly following their appearance are called cash transactions. Cash is currency, cheque, draft banking etc.
Example: Paying $1000 to the suppliers.
Credit transaction: Transfers that aren't exchanged for cash directly after they arise are considered payment transfers. In this scenario, cash transfer is rendered within a specified time frame.
Example: Buying goods from a supplier on accounts of $1000.
Non-cash transaction: When there is no possibility about paying the amount on the day of incidence which being considered non-cash sales in the future.
Example: Depreciation or amortization.
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