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A financial transaction involves an activity that changes the value of the assets, liabilities, or owner’s equity in a business. Almost everyone is involved in a financial transaction at some point or another. Examples of typical financial transactions include;
- Purchases at the candy store
- Buying a new house
- Paying monthly bills
Types of Financial Transactions
Any transaction that impacts monetary value and account balances is a financial transaction. They are recorded in accounting journals. Such events are important to investors, managers, businesses, and consumers. So what are the different types of financial transactions that these stakeholders record or engage in? There are four primary types of financial transactions in the business world. They include;
- Sales are financial transactions that legally transfer property for money or credit. Sales are a part of revenue that is earned by the business when goods are delivered or when services have been rendered to customer. Sales financial transactions made by extending credit to the customers would be recorded as accounts receivables.
- Purchases are financial transactions that involve the business obtaining the goods or services necessary to make sales. Purchases may be made with cash or using accounts provided by the supplier of the goods or services. This type of financial transaction is recorded in the accounts payable of the business.
- Receipts are the financial transactions caused by the business getting paid for supplying goods or services to another business.
- Payments are the financial transactions that refer to a business paying to another business for receiving goods or services.
