Any business activity which directly impacts the financial status and statements of your business is called an accounting transaction. Accounting transactions are of various kinds, and each kind has its own importance. As a business owner, you need to be certain that you are keeping track of any and all transactions and accounting them as per the needs of your business process. For this purpose, most businesses outsource bookkeeping ad accounting services. Therefore the financial records are accurately and appropriately recorded.
Identifying, approving, sorting, and lastly storing this financial information is a hefty task when it comes to maintaining a record of financial transactions. But you need to do all of it so that you can retrieve the required information at any point when need be.
This article aims to help you recognize the various kinds of financial transactions that require you to keep an account of them.
Classification of accounting transactions: Various points of view
Accounting transactions are of many kinds. You can classify them in a number of ways. You can classify them on the basis of institutional relationships, visibility, modes of transfer of capital, or objective of the transactions. The only point common in all these kinds of transactions is, you need to keep a record for all of these.
They are classified as follows:
1. Based on the institutional relationship
The receiver and the accounts that ay can both be either related to your own organization or one of them can be a stakeholder, investor, or a client. Based on this kind of relationship, you can tell these two types of accounting transactions apart:
· External transactions
External transactions entail the trading of services and goods with money. When two persons or two organizations enter into a transaction, in such a way that one is buying the goods or services while the other is selling it, you can refer to it as an external business transaction.
· Internal transactions
Internal transactions are not about sales to another party. Instead, a financial operation occurs within the organization. A top example can be estimation and computation of employee salaries and payroll processing. You can also make an estimation of asset depreciation value as another example.
2. Based on the exchange of cash
Accounting transactions can make use of three modes of exchange of cash. But the important point to note here is that, whether the transactions are cash, noncash, or credit, you need to record all of them. You cannot rely on a layman for this job. So Outsource a reliable bookkeeping resource to keep accurate and free of misrepresentations record of all kinds of transactions.
These are as follows:
· Cash transactions
If you deal directly with cash while making a transaction, you call it a cash transaction. The example can be buying office supplies from stationery and paying for them with cash in hand, a check, or a debit card. All these three modes fall under the umbrella of a cash transaction.
· Non-cash transactions
There are some transactions for which the payment occurs in the future. If your company is buying an electric appliance from another company, and in case of the machine turning out faulty, you get the whole amount back, it is a noncash transaction.
· Credit transaction transactions
As opposed to cash transactions, credit transactions entail a payment date promised in the future. For instance, you get a device for your office, but according to the transaction promise with the supplier company, you will pay the amount due in 30 or 60 days.
3. Based on visibility
Based on visibility, accounting transactions can be divided into two types. These are as follows:
· Visible transactions
Some transactions involved the purchase of real assets. These are called real or visible transactions. The assets involved in such transactions may be machinery, furniture, or tools.
· Invisible transactions
Besides visible transactions, there are some transactions that you cannot see occurring. For instance, discounts, interest payments for acquired assets, depreciation of assets, etc. cannot be seen and thus are referred to as invisible transactions.
4. Based on objective
Every transaction has its own objective. Based on the primary goal or purpose of a given transaction, you can place it under one of the following types of accounting transactions:
· Business transactions
The daily routine sales and purchases are transactions that keep any business running. To keep your business afloat and track all these transactions, get help from one of the top audit firms in Dubai so as not to miss out on any small fragment of your inflows or outflows. Common examples of business transactions are office space rent payments, everyday purchases, advertisements, etc.
· Non-business transactions
There are transactions that have nothing to do with selling or buying anything. These instead are related to donations or social responsibilities that your company takes upon itself.
· Personal transactions
As a business owner, you must have expenses that do not fall under business and non-business transactions. They are instead meant for personal purposes like celebrating birthdays, giving rewards, etc. All of these are personal transactions.
Accounting transactions influence your business!
All accounting transactions, no matter which category they fall under, are important to track, monitor, and record. These records will provide you with pertinent information and insights in times of need. You will be able to base your business decision on these insights. Make sure you hire experienced professionals for this purpose!