What is a financial transaction: What exactly is a financial transaction? In the accounting industry, a financial transaction is one in which there is some sort of activity that changes the value of the assets, liabilities, or owner's equity of a business. These types of transactions consist of a buyer and a seller, and they always involve money in some way. Financial transactions in accounting are always recorded in the accounting journal in chronological order. Overview A financial transaction is one which is carried out between a buyer and a seller to exchange goods or services for payment. The classification of a transaction (such as Invoice, Credit Note, Payment, Refund) determines its features and its notation in the double-entry accounting system (debit or credit). Types of Financial Transactions There are four main types of financial transactions that occur in a business. These four types of financial transactions are sales, purchases, receipts, and payments. Sales are the transactions in which property is transferred from buyer to seller for credit. Sales transactions are recorded in the accounting journal for the seller as a debit to cash or accounts receivable and a credit to the sales account. Purchases are the transactions that are required by a business in order to obtain the goods or services needed to accomplish the goals of the business. Purchases made in cash result in a debit to the inventory account and it also brings credit to cash. If the purchase is made with a credit account, the debit entry would still be to the inventory account and the credit entry would be to the accounts payable account. Receipts are the exchanges that allude to a business getting paid for goods and services to another business. The receipt transaction is recorded in the journal for the dealer as a charge to money and a credit to accounts receivable. Payments are the transactions that refer to a business receiving the cash for a good or service. They are always recorded in the accounting journal of the business issuing the payment as a credit to cash and a debit to accounts payable Tags
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