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Financial Transactions - Economypedia
HomeTagsPosts tagged with "Financial Transactions"
Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. It can also refer to the different recording techniques businesses can use.
Maintaining and balancing ledgers, accounts, and subsidiaries
Importance of Bookkeeping
Proper bookkeeping gives companies a reliable measure of their performance. It also provides information to make general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.
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.
In accounting, a financial transaction in accounting is an event that impacts on the monetary value of an asset, a liability, or the owner’s equity of a business and causes it to change. A financial transaction is characterized by the monetary impact it has on the financial statements of the business created by recording it’s details in an accounting register called journals. An event that does not impact on the business financially or monetarily is not recorded in the journals.
What is the purpose of recording a financial transaction in accounting?
Business stakeholders like managers, investors and funders need relevant and timely information to help them make financial decisions about the business resources under their control. In accounting, this information is supplied by financial reports that inform stakeholders of the current financial position and performance of the business. By recording financial transactions that impact on the assets, liabilities and owners equity of a business, stakeholders are able to stay constantly informed of the changes taking place in the financial position and performance of the business.
