What is Transaction in Accounting

In accounting, transaction is the contract between buyer and seller for buying and selling of goods, asset or service. It is also exchange of money from one party to other party when goods and services are bought and sold on credit. It means when we buy the goods, it is the transaction. When we sell the goods, it is the transaction. When we get any service, it is the transaction. When we provide the service, it is the transaction. When we get or pay the money to other party, it is the transaction. 

Everyday, we buy different quantities from different parties on credit. It means, we do lots of buying transactions in a day. Like this, we sell different quantities to different parties on credit. It means, we do lots of selling transactions in a day. Because every transaction is the contract, so, there is a written proof of this contract in the form of bill or invoice. On this bill or invoice, we pass the journal entries. Journal entries are the systematic record of transactions because it is not possible to remember billions of transactions in a month. For example in Forex market, we buy and sell the currencies. For this, billions of transactions for exchanged is done.

As per wikipedia, In 1997, 1.3 billion dollars were exchanged per day on the foreign exchange market, roughly 475 billion dollars annually. Now, this figure is double. So, all these transactions are recorded computer accounting system. 

Following are the main Transactions :

1. Purchase Transactions 

For example, we bought a commercial shop by paying Rs. 10,00,000. We bought our business stock of Rs. 5,00,000 on credit.

2. Sale Transactions 

For example, we sold same commercial shop by getting Rs. 15,00,000. We sold our business stock of Rs. 4,00,000 on credit.

3. Loan Transactions

We get loan of Rs. 40,00,000 from ABC. We provided loan of Rs. 30,00,000 to DEF.

4. Mortgage Transactions 

It is also loan transactions but in this, for getting loan, we have to give our asset as security. It is also called secured loan transactions because if we will not return our taken loan, other party will sell our asset and will possess our loan money. For example XYZ has given his gold of Rs. 30,000 in the possession of  Manipuram Finance ltd for getting loan of Rs. 10,000 @ 1.5% per month interest. This is mortgage transaction.

5. Cash Transactions 

 For example, we paid creditor Rs. 5,00,000.

6. Bank Transactions 

For example, we received Rs. 4,00,000 through check from our debtor. After internet banking facility, bank transactions has increased by millions times. But for this, we have to use login and transaction passwords.

7. Debit Card Transactions 

For example, we paid our domain and hosting fees of Rs. 40,000 with our debit card of SBI. Same Rs. 40,000 has been deducted from my bank account.

8. Credit Card Transactions

For example, we paid  our domain and hosting fees of Rs. 40,000 with our Credit Card of HDFC Bank. It is loan by bank to me which I have to pay with interest

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Accounting Education: What is Transaction in Accounting
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