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Types of Business Transaction According to Sale and Purchases

HI, Today we talk about the Types of Business Transaction According to Sale and Purchases, So whenever a property changes hands there has been a business transaction. The main type of business transactions is sales and purchases.

Sales and purchases occur in two different ways, by cash or on credit

A sale takes place at one of two points in time

  • Cash sales. If the sales are for cash, the sale occurs when goods or services are given in exchange for immediate payment, in notes and coins, or by cheque or plastic card
  • Credit sales. If it is on credit, the sale occurs when the business sends out an invoice for the goods supplied; cash is received later

A purchase also takes place at one of two points in time.

  • Purchases for cash. If the goods are paid for in cash then the purchases occur when the goods and cash exchange hands
  • Purchases on credit. If the goods are bought on credit, the purchase normally occurs when the business receives the goods, accompanied by an invoice from the supplier. Cash is paid later.

Furthermore, we discuss the cash and credit transaction

  • A cash transaction is one where the buyer pays cash to the seller at the time the goods or services are transferred
  • A credit transaction is a sale or a purchase which occurs sometime earlier than cash is received or paid.

Types of Business Transaction According to Sale and Purchases

Types of Business Transaction According to Sale and Purchases

With credit transaction, the point in time when a sale or purchases is recognized in the accounts of the business is not the same as the point in time when cash is eventually received or paid for the sale or purchase. There is a gap in the time between the sale or purchase and the eventual cash settlement.(it is possible that something might happen during that time which results in the amount of cash eventually paid(if any)being different from the original value of the sale or purchase on the invoice.

There are other Types of Business Transaction which needed to be recorded.

  • Payment of wages
  • Borrowing a money
  • Offering a discount

The simplest form of business transaction is a cash transaction.

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Basic Accounting Concepts and Principles

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