The Transaction Defination

 A type of external event that in terms of money brings a change in financial condition in a system of business can be known as a transaction. A transaction involves the transfer of something or value between two or more entities. An exchange in which parties receive an amount of cash or also sacrifice its value.

There is a movement of value from one source to another in every transaction. For example, if the goods are purchased in the form of cash there is also a movement in the goods from buyer to seller and seller to the buyers. 

Classification Of Transaction:

The following is the classification of transactions:

• Cash Transaction: The immediate involvement of cash, cheque receipt, and payment is called the cash transaction. For example, goods were sold to Mr F for cash 10000. In this cash transaction to whom the goods are sold the name of the party to whom goods are purchased is not recorded because it serves no purpose.

• Credit Transaction: there is no immediate involvement of cash receipt or payment known as a credit transaction. For example, the purchase of goods on crest from Mr Y.

In a credit transaction, the name of the party is recorded to ascertain how much is owed to or from whom.

• External Transaction: The involvement of a second party and business entity is called an external transaction. For example, goods sold to Mr. Rehan for Rs 60000 on credit. 

• Internal Transaction: There is no involvement of a second party is called an internal transaction. For example, depreciation is charged on machinery. 

Rules For Determining Cash Or Credit Transactions:

There are some points or rules by which it is decided whether the transaction is on credit or cash.

1. Cash purchases, cash sales, and all transactions where the word paid is mentioned are to be treated as cash transactions, for example, salary paid, goods sold for cash, and so on.

2. When a personal name or the name of a firm or the word an account or on credit is mentioned in the transaction it will be treated as a credit transaction for example, goods sold to Mr Saqib for Rs 50000.

3. When there is the name of a person and the cash is mentioned in the transaction it will be identified as a cash transaction. For example, goods sold to Mr Yaseen for cash Rs 1000.

Features  Of Transactions:

1. Transactions are recorded from the information provided on source documents.

2. A transaction is an event that involves an exchange of property or services (or a combination of both) between two or more parties. 

3. Each transaction has an effect on the assets and liabilities (for Capital) of a business unit and hence can change the resources and obligations of the business unit.

4. Each transaction requires recognition in the accounting system because any accounting system is essentially based on transactions.

5. A transaction may be for a particular accounting period or it can be for several accounting periods.

6. The transaction may be internal (without involving an outsider, such as providing depreciation on machinery) or external (involving an outsider, for example, purchasing goods on credit)

7. Since each transaction involves two accounts, it can be expressed in terms of debit entry and credit entry.

8. The total assets of the business must be equal to the total liabilities and capital in each transaction. Therefore, the equity of the balance sheet can’t be destroyed by any transaction. 

9. All transactions are recorded in the journal and these are numbered for reference.

10.  The nature of each transaction is carefully analyzed since it affects the operations or financial status of a business unit. Transactions are analyzed in 

terms of account to be mentioned for:

1. Assets

2. Liabilities

3. Capital

4. Revenues

5. expenses

    11. Adequate evidence of the transaction is essential for both control and financial reporting.

Event: 

An event is an occurrence, happening, or incident that may or may not bring any change in the financial position of a business unit. An internal event that occurs in a business unit for example using new materials in production, the death of a general manager, or a threat by a labour union to call a strike.

An external which includes the involvement of the interaction between the business unit and their environment. For example, a change in the product price of the unit of business buys or sells, or in technology improvement by a competitor. 

Features Of Events:

1. An event is a circumstance, passing, change, or incident

2. In the event, there is no change in the business unit's financial position.

3. An event is not expressed in the form of money.

4. An event may be external (involving interaction between a business unit and its environment) or internal (within a business unit)

5. All events are not recorded in the books of account.

6. An event may be a complete action, or an expected or possible future action.

7. An event can cause a reconstruction or liquidation of a business unit.

8. An event does not require exchange between different parties.

9. An event may result in another event.

10. The occurrence of an event may or may not be under the control of a business unit.