Transactions

4 Key excerpts on "Transactions"

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  eBook - PDF

  College Accounting

  • Jerry J. Weygandt, Paul D. Kimmel, Deanna C. Martin, Jill E. Mitchell(Authors)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  When an event or activity occurs that affects one or more of these ele- ments, a business transaction results. Companies therefore record business Transactions that affect the basic accounting equation. In other words, Transactions (business trans- actions) are a business’s economic events recorded by accountants. Transactions may be external or internal. • External Transactions involve economic events between the company and some outside individuals or companies. • Internal Transactions are economic events that occur entirely within one company. • Companies carry on many activities that are not business Transactions. Business Transactions EXAMPLE If Designer Dinners purchases a new mixer from a supplier, that is an external transaction, as is the payment of the monthly cell phone bill. When customers pay Designer Dinners to prepare meals, that is an external transaction as well. The use of office supplies, such as paper for the printer, is an internal transaction. However, when Dan Johnson (the owner) responds by email to a customer’s question, that is not considered a business transaction because no dollar amounts are affected. Therefore, the accounting equation is not affected. Let’s look more closely to see how a company determines what is or is not a business trans- action. Identifying Business Transactions A company conducts many activities each day. However, not every activity is a business trans- action. Let’s say a business owner talks with a potential customer. This is not a business trans- action by itself, so it is not recorded (although it could later lead to a transaction). Similarly, if the owner hires an employee, that is not a business transaction because it does not affect the basic accounting equation. When that employee actually begins work and earns wages, that is a business transaction. As Illustration 2.5 shows, a company must therefore analyze each event to find out if it affects the elements of the accounting equation.

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  Accounting

  • Peter J. Eisen, Barron's Educational Series(Authors)
  • 2013(Publication Date)
  • Barrons Educational Services

    (Publisher)

  3 RECORDING BUSINESS Transactions

  KEY TERMS

  account An individual record of specific items that a business owns (assets) and owes (liabilities), as well as a recognition of ownership (capital).

  double-entry accounting A method of accounting in which, for every debit entry, there must be a corresponding credit entry of the same amount. Every business transaction must be represented by at least two changes.

  journal A book of original or first entry. The basic two-column journal provides for entering business Transactions in dated order. All parts of every transaction are recorded, and provision is made for adequate explanation.

  ledger A book of secondary or final entry, containing individual accounts. The term “ledger account” refers to an individual account in the ledger. A ledger may be a bound book, a looseleaf-type book, or a computer printout.

  trial balance A record prepared at any moment in time to prove the accuracy of the ledger. If the totals of the debit and credit balances in the individual ledger accounts agree, the ledger is said to be in balance.

   

  WHAT ARE BUSINESS Transactions?

  A business transaction is any business activity that affects what a business owns and owes, as well as the ownership of the business. We learned in Chapter 1 to keep track of business Transactions by using an expanded form of the accounting equation. Most businesses, however, are involved in daily business Transactions so numerous as to make this method unwieldy. Since we cannot expect an accountant to remember everything that has happened to the value of a specific asset or to keep mental notes of all the numerous records of an organization, another method must be devised to record business Transactions.

  • INFORMATION TO KEEP TRACK OF

  When we added a business transaction to the accounting equation, we showed the change that took place in the specific record. This increase or decrease is an important part of our record, but we also want to keep track of the date that a particular transaction takes place. Some form of explanation

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  eBook - PDF

  National Accounts and Economic Value

  A Study in Concepts

  • U. Reich(Author)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  If balance sheets were drawn up at the discretion of each unit, with the assent of its individual stakeholders but without any general or legal framework, this would not support the construc- tion of national accounts. The rigidity of the national accounts as a system of 16 Nominal Accounts flows and balances is acceptable as an adequate picture of an economy inas- much as commerce itself is conducted within an equally rigid system of legal and social constraints that can be mirrored in homogeneous accounts. . Definition 2.2: a value transaction, or transaction in the strict sense, is the creation between two economic units of a paired and equal claim and liability for payment in money. This definition refers to exchanges between economic units that affect the property worth of the units, as reflected in the term `transaction'. The content of the transaction is also defined. Valuable objects may pass between economic units, and this is often called a transaction `in kind.' But properly speaking this is not correct. For in a money economy it is only money that functions as an objective measure of value, and any other valuable object will in all probability be valued differently by the two economic agents. This is why it is only when a transaction occurs in money ± the normal means of exchange in a capitalist economy ± one can say the value has been `realised'. It has been transformed into a general, abstract form that is suitable as a means of payment for any other good. The passage of money is a necessary condition for the realisation of economic value. This definition is a matter of social convention, of course, but it is embod- ied in the financial system of a country which cannot easily be changed. This is why we insist that value in money is different from value in kind. The denomination of the means of payment is not just a nume Âraire but a con- stituent element of value.

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  Accounting

  Business Reporting for Decision Making

  • Jacqueline Birt, Keryn Chalmers, Suzanne Maloney, Albie Brooks, David Bond, Judy Oliver(Authors)
  • 2022(Publication Date)
  • Wiley

    (Publisher)

  What measures can they implement to overcome these challenges? Pdf_Folio:125 CHAPTER 4 Business Transactions 125 Here are some pointers that you can consider in your refection. • All businesses should open a separate bank account for the business. • Regular bank reconciliations should be performed and regular checking of the validity of payments. • All business Transactions should be supported by source documentation. • Cash Transactions should be discouraged as card Transactions provide a better audit trail. • Automated accounting systems simplify capturing and recording of business expenditure. • Separate business and personal items (e.g. have separate phones for business and personal use, separate laptops, etc.). Pdf_Folio:126 126 Accounting: Business reporting for decision making SUMMARY OF LEARNING OBJECTIVES 4.1 Describe the characteristics of business Transactions. A business transaction involves the exchange of resources between an entity and another entity or individual, and must be at arm’s length distance. 4.2 Differentiate between a business transaction, a personal transaction and a business event. For a business transaction to be recognised, there must be an exchange of resources between an entity and another entity or individual (e.g. the purchase of office equipment for cash). Personal Transactions do not involve an exchange of goods between the entity and another party. Similarly, no exchange of resources takes place when a business event occurs, such as when the contract of a new employee is being negotiated or when the entity is being advised that a loan interest rate will increase from 1 July in the current year. These two events will become business Transactions at some later stage when the exchange of resources takes place. 4.3 Explain the accounting equation process of the double-entry system of recording.

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