A business transaction may be defined as an event or activity, capable of being measured in a dollar amount, which must be recorded in the accounting record of a business.
Exchange of Valuables
At the most fundamental level, a business transaction is the basic activity that defines the very essence of being in business. For instance:
- The exchange of money for goods
- The exchange of money for services
- A value for value exchange involving no money
Each business transaction should be recorded as a bookkeeping entry and later evaluated as a business accounting record.
Types of Transactions
The variety of activity that qualifies as a business transaction is extensive, but the majority of such fall into one of these three categories:
- A simple transaction
- A complex transaction
- An ongoing transaction, as one would expect, for example, between a manufacturer and its suppliers
Each business requires a unique understanding of the nature and intricacies of that particular niche, yet most businesses face a similar set of concerns. Among the most common issues to consider:
- Entity formation
- Business planning
- Contract writing and review
- Mergers and acquisitions
The Importance of Good Records
An accurate recording of all transactions is fundamental to the business owner’s understanding of the status of the business. Additionally, every potential lender or others who may extend credit will need to see a financial snapshot of the business. Finally, the government may require verification of the amounts claimed as income for tax purposes. Cash businesses are especially scrutinized.