What is a Transaction?

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Business, be it a manufacturing, trading or service providing, consists of a number of activities. From the commencement of the business to a daily routine, it’s a series of events, dealings, and happenings. A business idea, introducing capital, purchasing machinery or furniture, business proposals or meetings, selling goods or services, paying for rent or any other expenses – it’s a series of activities which forms a business or an organization.

Business events can be categorized either (i) where money or a value exchange is involved or (ii) where money or money’s worth is not involved. Money or money’s worth is involved in the events like introducing capital, purchasing machinery, selling goods & services or paying for expenses, Whereas, money is not in play in the events like having a business idea or business proposals.

Meaning of a Transaction:

“Every financial change which occurs in your business is a transaction” – Fieldhouse.
In Accounting, the term ‘transaction‘refers to any event which is measurable in the terms of money and which changes the financial position of the business concern.

Essential features which define a business transaction:

  • It is an event, happening, dealing or activity
  • It measurable in terms of money. This is why a business transaction is generally called a monetary transaction or a financial transaction.
  • It generally involves exchange or transfer of money or money’s worth i.e. some value or benefit.
    o Note that sometimes a transaction may not involve a transfer of benefit. For example – goods lost by fire doesn’t result in the transfer of benefit.
  • The above-mentioned exchange or transfer happens between two parties like persons, businesses.
    It changes the financial position of the business. Goods purchased for cash will reduce the cash and will increase the goods stock.
    o Note that such a change in the financial position may not be always visible. For example – depreciation in the fixed assets.

Every transaction is an event but every event may be not be a transaction. The above mentioned essential features define if an event is a transaction or not.

Bookkeeping is mainly concerned with the recording of financial data relating to business operations in a significant and orderly manner. It involves the process of recording, analyzing and interpreting the financial transactions.

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