BUSINESS TRANSACTIONS: CHARACTERISTICS AND EXAMPLES - DUDAS - 2025

Business transactions are economic activities or events that involve interactions between two or more parties, in which products, services, or values ​​are exchanged for some type of retribution, often in the form of money.

Certain aspects of business transactions, such as truthful representation and contractual provisions, are governed by law. Transactions can be as short as a cash purchase, or as long as a service contract that spans years.

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Sale is the most common business transaction. All rights that the seller has in a specific object are transferred to the buyer in exchange for the buyer paying the purchase price to the seller.

Objects that can be transferred can be mobile or immobile, and tangible or intangible. Patents are an example of intangibles.

The business transacted can be between two parties involved in the business, conducting the transaction for their mutual benefit, or between a business entity, such as a retail store, and a customer.

Electronic commerce and accounting system

In the context of electronic commerce, a business transaction is any monetary transaction that takes place between consumers or businesses over the Internet.

These transactions free up time when done online, as each party does not need to be physically present to complete the transaction.

An accounting system must record all business transactions to ensure complete and reliable information when financial statements are prepared.

characteristics

The following characteristics of a valid business transaction can be pointed out that every accountant must take care of before entering the transaction in the accounting.

- It's a monetary event.

- It affects the financial position of the business.

- It belongs to the business, not to the owner or anyone else who runs the business.

- It is started by an authorized person.

- It is supported by a source document.

In determining whether an action is a business transaction, one must consider whether there is a way to enter it into an accounting record.

To qualify as an accounting / recordable business transaction, the activity or event must:

Involve the business entity

The concept of separate entity clearly distinguishes between business transactions and those of their owners.

If Mr. Bright, owner of Bright Productions, purchases a car for his personal use with his own money, it will not be reflected in the company's books. This is because it has nothing to do with the business. Now if the company buys a delivery truck, that would be a company business transaction.

Have a monetary value

Transactions must include monetary values, which means that a certain amount of money must be allocated to the affected accounts.

For example, Bright Productions sells a video coverage service and expects to collect $ 10,000 after 10 days. In this case, sales and accounts receivable can be measured at $ 10,000.

Losses from fire, flood, and others can be estimated and assigned with monetary values.

The mere purchase order of a customer is not a recordable business transaction. There must be an actual sale or service execution first to give the company a claim on the proceeds.

Have a double effect on the ledger accounts

Every business transaction has a double effect. For every value received, there is a value delivered. Or for each debit, there is a credit. This is the concept of double entry bookkeeping.

For example, Bright Productions bought tables and chairs for $ 6,000. The company received the tables and chairs, thus increasing its assets, in office equipment.

In return, the company paid in cash. So there is an equal decrease in assets: decrease in cash.

Be supported by a source document

Business transactions must be supported by source documents. These documents serve as the basis for recording transactions in accounting.

Examples of source documents are: sales invoice for sales transactions, supplier invoice, promissory notes, and other commercial documents.

Importance

Business transactions are events that initiate the accounting process of registration in a company's accounting system.

In accounting, financial information of an individual, business or organization is recorded, classified, summarized and reported to interested users. The financial information reported comes from what is known as commercial transactions.

To understand basic accounting, you must be familiar with the starting point and core of the accounting process, which is the business transaction. Without a business transaction, there is nothing to record, classify, summarize, and report.

An up-to-date database is one of the most useful resources that can help you plan new sales and marketing strategies.

Other business records that should be kept are documents that provide a record of business transactions, or that allow the tracking and verification of these transactions through the accounting system from start to finish.

These include bills, receipts, cash register tapes, bank records, check stubs, etc.

The essence of a good record of business transactions is good accounting. Efficient accounting will save time and money in the long run.

Registry mantenance

Proper record keeping of business transactions gives the business a real advantage over the competition in a number of ways.

- Helps to manage accounts, interest, taxes and labor costs effectively.

- Acts as a resource for new strategies.

- Help in finding solutions for business problems.

- Reports on customer service and employee efficiency.

- Help in monitoring the growth rate and profit of the company.

- Indicates hidden and unexpected costs.

- He is the most ingenious advisor when the business is in serious trouble.

Types

Cash and credit transactions

Business transactions where cash is paid at the time the transaction occurs are known as cash transactions.

For example, Mr. John is sold some merchandise for $ 50 and immediately pays $ 50 in cash for the purchased merchandise. It is a cash transaction because cash was immediately received for the products sold.

In today's business world, cash transactions are not limited to the use of banknotes or coins to make or receive payments, but all transactions made with debit or credit cards issued by financial institutions are also classified as cash transactions.

On credit

In a credit transaction, cash does not immediately change hands when the transaction occurs. In other words, the cash is received at a future date.

For example, you buy some products from the vendor for $ 1,000. The supplier agrees to subsequently receive payment of $ 1,000 for the goods it sold. The goods are taken over and transported to the store.

It is a credit transaction because cash payment has not been made immediately at the time of purchase of the goods.

In today's business world, most products are bought and sold on credit.

Internal and external transactions

Internal transactions are those transactions in which external parties do not participate.

These transactions do not involve the exchange of values ​​between two parties, but the event that constitutes the transaction can be measured in monetary terms and affects the financial position of the business.

Examples of such transactions include the recording of the depreciation of fixed assets, loss of assets caused by fire, etc.

External transactions are transactions in which a company exchanges value with external parties.

These are the common transactions that a business routinely conducts. Examples of external transactions are: purchases of goods from suppliers, sales of goods to customers, purchase of fixed assets for commercial use, payment of salaries to employees, etc.

Examples

A business transaction is an economic event with a third party, which is recorded in an organization's accounting system. Such a transaction must be measurable in money. Examples of business transactions are:

- Buy insurance from an insurer.

- Buy inventory from a supplier.

- Sell products to a customer for cash.

- Sell products to a customer on credit

- Payment of salaries to employees.

- Obtaining a loan from a lender.

- Sell shares to an investor.

Some events are not considered business transactions, such as giving a reporter a tour of the company premises, as there is no tangible value associated with the event.

There are many events that are clearly business transactions, such as purchases of equipment or supplies for an operating business.

Non-commercial transaction

There are numerous events held for commercial purposes and which, despite their commercial intent, are not commercial transactions.

For example, if a corporate director gives a commencement speech, this ultimately benefits both the students and the director and his company.

Students benefit from the helpful or inspiring content of the graduation speech, while the principal and his corporation publicize themselves in the process.

There may even be a substantial increase in the company's stock price associated with favorable publicity, and it may be that the company store in the college town where the director gave the speech will see an increase in quarterly sales.

However, even if there is a measurable business benefit derived from the speech, it does not constitute a business transaction.

For an action to be considered a commercial transaction, there must be a specific payment for it. In accounting terms, a remuneration.

There has to be an exchange of value. If the director had been paid to deliver the speech, then it would be considered a business transaction, being an exchange of values: the speech and the payment for it.

References

1. Patrick Gleeson (2019). Business Transaction Definition & Examples. Small Business - Chron. Taken from: smallbusiness.chron.com.
2. Accounting for Management (2018). Business transaction. Taken from: accountingformanagement.org.
3. Accounting Verse (2019). Understanding and Analyzing Business Transactions. Taken from: accountingverse.com.
4. Steven Bragg (2019). Business transaction. Accounting Tools. Taken from: accountingtools.com.
5. Fox Finance Group (2019). Importance of Business Record Keeping. Taken from: foxfinancegroup.com.au.
6. Misscpa (2011). Business Transaction. Taken from: misscpa.com.