CLASSIFICATION Accouting

CLASSIFICATION
Transactions may be divided into three groups: CASH TRANSACTION:
If the value of a transaction in met is cash immediately, it is called cash transaction. For ex* we buy furniture for Rs. 2000 from Asif 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 above example, if we do not pay Asif Rs. 2000 immediately, it will be credit transaction.
Transaction AND ACCOUNTING Equation
2S
PAPER TRANSACTION:
When there is na question of meeting the value of a transaction, it is regarded as a paper transaction. For example, I have lost Rs. 500. This changes.my financial position-my properties decrease in June by Rs. 500. But there is no question of meeting the value of such a transaction. This is a paper transaction.
Transactions may again be divided into the following two classes;
1. EXTERNAL TRANSACTIONS:
A transaction taking place with an outside person or organization, is called an external transaction, For example, a machine is purchased for Rs. 20,000 from Kashif Bros. This is an external transaction.
2. INTERNAL TRANSACTIONS:
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.
RULES FOR DECIDING WHETHER A TRANSACTION IS CASH OR
CREDIT; *
Sometimes transactions are worded in such a way that it becomes difficult to decide whether they ace cash or credit transactions. The following rules will make the position clear,
1. A transaction Is regard as a o*sh transaction If:
The word "cash" is mentioned in the transaction. For example Bought goods for cash Rs.
5000 from Arshad.
The name of the seller or buyer is not mentioned in the transaction. For example, Bought
goods Rs.5000.
2. A transaction la regarded as a credit transaction if >
The words "on credit" or "on account" are mentioned in the transaction. For example,
Bought goods Rs. 5000 on credit,
The name of the seller or buyer is mentioned in the transaction and the word "Cash" is not
mentioned. For example, Bought goods from Arshad Rs. 5000.
Thus we may conclude from the above discussion that every business transaction brings a double Atnge in the financial position of the business. It brings a change in the assets, liabilities, owner's equity, 'expenses or revenues of a business,