|The main function
of an accountant is to record properly the financial
transactions of a business concern in the books of
accounts and to ascertain its true result at the
year end. Thus transaction is the foundation of
accounting - the first and formest element of
accounting. In a word, it is the life and blood of
Accounting. Hence the accountant must have a fair
idea about the term "transaction."
language "transaction" means exchange of something.
But in Accounting it is used in a special sense.
If the financial position of a business concern
changes on the happening of an event which is
measurable in terms of money, that event is regarded
as a "transaction" in Accounting.
A business event
which can be measured in terms of money and which
must be recorded in the books of accounts is called a
What is an Event?
language "Event" means anything that happens. Human
life is full of events. So many events take place in
the family and social life of a person. The events
may be classified into two types:
1. Monetary Events:
Events which are
related with money, i.e. which change the financial
position of a person are known as "monetary events".
For example, daily shopping, marriage ceremony,
birthday anniversary, marriage anniversary etc.
2. Non-Monetary Events:
Events which are not related with money i.e.
which do not change the financial position of a
person are known as "non-monetary events". For
example, winning a game, delivering a lecture in a
accounting only those events which change the
financial position of the business and which call
for accounting are recognized as "Events". In other
words, all monetary events are regarded as "business
Remember, it is not
that anything which results in exchange of something
will be regarded as transaction. On the other hand,
something may be regarded as a transaction even
though it involves no exchange.
For example, R sends
a price-list to his customer, A. This involves
exchange of price list-between R and A, yet it is
not regarded as a transaction, because it is not
measurable in term of money and it does not change
the financial position of both the persons.
suppose, goods worth $1000 are destroyed by fire.
This does not involve any exchange, yet it is
regarded as a transaction, because it is measurable
in terms of money and it changes the financial
position of the business.
It must be noted
that an event, although measurable in terms of
money, may not be regarded as a transaction. For
example, we receive an order for supply of goods
worth $1000. Although it is measurable in terms of
money, it is not regarded as a transaction, since it
has not changed the financial position. It will,
however, be regard as a transaction when the goods
are supplied according to the order.
It appears from the
above discussion that the following two conditions
must be satisfied in order that an event may be
regarded as a transaction in Accounting;
- The event must
be measurable in terms of money.
- The financial
position of the business must change on account
of that event.