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Cash and Credit Transactions:

Sometimes transactions are worded in such a way that it becomes difficult to decide whether they are cash or credit transactions. The following rules will make the position clear:

1. A transaction is regard as a cash transaction if:

(a) The word "cash" is mentioned in the transaction. For example Bought goods for cash $5000 from A.

(b) The name of the seller or buyer is not mentioned in the transaction. For example, Bought goods $5000.

2. A transaction is regarded as a credit transaction if:

(a). The words "on credit" or "on account" are mentioned in the transaction. For example, Bought goods worth $5000 on credit.

(b). The name of the seller or buyer is mentioned in the transaction and the word "Cash" is not mentioned. For example, Bought goods from A worth $5000.

Every business transaction brings a double change in the financial position of the business. It brings a change in the assets, liabilities, owner's equity, expenses or revenues of a business.

 

More study material from this topic:

Definition and explanation of a business transaction
Features of transaction
Classification of transactions
Cash and credit transactions
Accounting equation with an example
Questions and answers




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