Transactions may be
divided into three groups:
1. Cash Transaction:
If the value of a
transaction in met is cash immediately, it is called
cash transaction. For example we buy furniture for
$2000 from A and immediately pay him in cash. It is
a cash transaction.
2. Credit Transaction:
If the value of the
transaction is not met in cash immediately, it is
called credit transaction. In that above example, if
we do not pay A $2000 immediately, it will be credit
3. Paper Transaction:
When there is no
question of meeting the value of a transaction, it
is regarded as a paper transaction. For example, I
have lost $500. This changes my financial
position-my properties decrease in value by $500.
But there is no question of meeting the value of
such a transaction. This is a paper
also be divided into the following two classes:
1. External Transaction:
taking place with an outside person or organization,
is called an external transaction. For example, a
machine is purchased for $20,000 from K Bros. This
is an external transaction.
2. Internal Transaction:
A transaction with
which no outside person or institution is involved,
is called internal transaction. For example, loss of
furniture by fire, decrease in the value of assets
on account of use (depreciation) etc.