Transaction

Definition

A transaction is any event that has a financial impact on a business and can be measured reliably. It involves the exchange of goods, services, or funds between two or more parties.

5 Must Know Facts For Your Next Test

1. Transactions are recorded in the accounting system through journal entries.
2. Each transaction affects at least two accounts to maintain the accounting equation balance.
3. Transactions can be classified as internal or external based on whether they involve outside parties.
4. The documentation supporting transactions includes invoices, receipts, and contracts.
5. Accurate recording of transactions is essential for preparing financial statements.

Review Questions

• What is the primary purpose of recording a transaction in accounting?
• How many accounts are typically affected by a single transaction?
• Why is documentation important for recording transactions?

Related terms

Journal Entry:

The method used to record all financial transactions in the accounting system.

Accounting Equation:

The fundamental equation representing the relationship between assets, liabilities, and owner's equity (Assets = Liabilities + Owner’s Equity).

Ledger:

A book or other collection of financial accounts where all journal entries are posted.