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Classification of Transactions:

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 transaction.

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

Transactions may also be divided into the following two classes:

1. External Transaction:

A 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.


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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