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Common Types Of Business Transactions

A Transaction is any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business deal or agreement. Transactions may require additions to both sides of the accounting equation, subtractions from both sides of the accounting equation, or an addition and subtraction on the same side of the accounting equation. In other words, (1) A transaction can increase the asset side of the equation and also increase the liability and equity side of the equation, (2) A transaction can decrease the asset side of the equation and also decrease the liability and equity side of the equation, (3) A transaction can increase the asset side and also decrease the asset side of the accounting equation, (4) A transaction can increase the liability and equity side and also decrease the liability and equity side of the accounting equation.

In a typical business transaction we get something and we give up something. Let's look at some examples of Typical Types Of Business Transactions and the Accounts and Entries Used To Record Them.

(1) Sale-Sell goods and or services (a) Cash Sale-customer pays at the time of sale. The business gets cash or a check from their customer and gives up a product or service to their customer. Accounts Used-Debit- Cash and Credit- Sales (b) On Account Sale-business allows the customer time to pay. The business gets a promise to pay from their customer and gives up a product or service to their customer. Accounts Used-Debit- Accounts Receivable and Credit- Sales

(2)Purchase goods and or services.

(a) Cash Purchase-business pays the supplier at the time of purchase. The business gets a product orservice from their supplier and gives up cash or a check to their supplier. Accounts Used-Debit-Expense or Inventory Account and Credit- Cash

(b) On Account Purchase-supplier allows the business time to pay The business gets a product or service from a supplier and gives up a promise to pay to their supplier. Accounts Used- Debit-Expense or Inventory Account and Credit- Accounts Payable

(3) Pay Supplier for Charge Purchases-pay suppliers for products and or services that we promised to pay for later (charge). The business gets the amount of their promise to pay the supplier reduced and gives up cash or a check. Accounts Used- Debit-Accounts Payable and Credit- Cash

(4)Receive Customer Charge Payments-receive payments from a customer that promised to pay us later (charge sale). The business gets cash or a check from their customer and gives up (reduces the amount of) their customer's promise to pay. Accounts Used- Debit- Cash and Credit- Accounts Receivable

(5) Borrow Money (Loans) The business gets cash or equipment and gives up a promise to pay. Accounts Used-Debit-Cash or Equipment and Credit-Note Payable

(6) Repay a Loan The business gets the amount of their promise to pay reduced and gives up cash or a check. Accounts Used-Debit-Note Payable and Credit-Cash

(7)Draw The business gets the owner's claim to the business assets reduced and gives up cash or a check. Accounts Used-Debit-Owner's Draw and Credit-Cash

(8)Payroll The business gets services from their employees and gives up a check. Accounts Used-Debit-Salary & Wages Expense and Credit-Cash

As you can see from the prior examples, transactions use debits and credits and accounts to initially record them in a business's books (journals).