What is a Business Transaction? Definition and Examples (2024)

Running a successful business means paying attention to what’s happening behind the scenes.

A business transaction occurs every time you make a sale, purchase inventory, or pay employees.To make accurate business decisions and gain a clear understanding of the company’s situation Cash flowyou need to understand how these transactions work.

You will now learn what a business transaction is and how it is recorded in a company’s books.

What is commerce?

A business transaction is a contract between a buyer and a seller to exchange goods or services for cash or other value. These transactions affect the company’s financial position and are recorded in the financial position. accounting recordsalso called the book.

The main characteristics of business transactions are:

Buyer and seller must agree to exchange terms

A buyer makes an offer for goods or services, and a seller accepts the offer. For example, when buying a car. You make an offer of $10,000 to buy a Honda Civic from a dealer, and the dealer accepts your offer. However, it is possible to change the order of offer and acceptance.

Consider shopping at a grocery store. The grocery store offers you a bag of rice for $1.99, and you check out and agree to buy it. Both of these are considered business transactions.

Note: Unlike the example above, the exchange of goods or services does not have to happen immediately.

Let’s say your business entity is accepting pre-orders for a new product that will be released in the next few months. The customer agrees to purchase and pays immediately, even if the delivery of the product is some time away. This is a sales transaction.

Buyer must provide something of value to seller

This is often cash. However, there are also cases of goods and services known as barter transactions. An example of a barter transaction is when you offer gift cards. e-commerce store Consult a tax accountant to prepare your annual tax return.

The key is that each party must offer something of value.

Let’s take a closer look at a hypothetical e-commerce example. Let’s say your e-commerce store sells Samsung mobile phones.you make an offer to wholesaler Purchase 100 Samsung Galaxy S24 phones at $300 each.

Does this qualify as a commercial transaction?

Your offer has not yet been accepted because the wholesaler has not accepted it. The wholesaler rejects the $300 price per piece and counters with $325. You agree that this is still a reasonable offer and he agrees to buy 100 phones at $325 each.

Now, there is a business deal. The wholesaler makes an offer and you accept it. Both of you provided something of value: a phone call to the wholesaler and cash to you.

As mentioned earlier, when a business transaction occurs, it must be recorded in the company’s financial records, depending on the type of transaction.

Types of commercial transactions

Commercial transactions are recorded according to their type and category. There are mainly four types of him:

1. sales transaction
2. purchase transaction
3. payment transaction
4. Receipt transaction

1. Buying and selling transactions

All businesses exist to sell goods and services. A sales transaction occurs when a business sells something to a buyer. That something could be a physical item. intangible goods (such as software) or services.

As we have seen, these exchanges are done to:

• Cash out now (cash transaction)
• Deferred payment (credit transaction)
• Goods or services of value (barter transactions)

Let’s take a look at an example. Suppose a pastry company offers to sell a case of delicious macarons to a major hotel brand for $100 to serve to guests. And the hotel accepts the offer.

This creates a sales transaction because the pastry company provides something of value (a case of macarons) and the hotel is accepted by providing something of value (cash).

But what if a pastry company offers a case of macarons for a free night’s stay at a hotel? This is still a sales transaction because both parties have agreed to the details of the transaction and both have provided something of value. .

2. Purchase transaction

In business, a purchase transaction occurs when a company purchases goods or services. Similar to sales transactions, these purchases may be for cash or something of value.

Returning to the pastry company example, when the company purchases sugar to make macarons, a purchase transaction occurs and is recorded in the company’s financial books.

Purchase transactions also occur when a confectionery company purchases a MacBook to assist with record keeping, a van to support local deliveries, or new baking equipment.

A company records a purchase transaction on the earlier of two events:

• payment: When paying for ordered products or services.
• receipt: When you receive the product or service.

Let’s consider some examples.

If a confectionery company orders a MacBook for $1,500 but never pays or receives it, there is no purchase transaction and the bakery should not record this purchase.

However, if your company orders a MacBook and immediately pays for it with a credit card, you need to record the purchase transaction. Also, if the confectionery company orders and receives his MacBook but does not pay for it, it records this as a purchase transaction.

If a pastry company provides 12 macarons to a professional photographer for product photography for the company’s website, this is also a purchase transaction.

3. Payment transactions

In contrast to purchase transactions, which do not involve the exchange of immediate cash, payment transactions everytime Involves cash transfer. When a company pays business-related expenses such as salaries, utilities, and office supplies; taxor stocka payment transaction occurs.

The important thing about payment transactions is that they require the transfer of cash.

4. Receipt transaction

A deposit transaction occurs when a company receives money for business-related reasons. This includes goods sold, services provided, assets Anything that will increase your cash, such as disposals or tax refunds.

Receipt transactions are different from sales transactions. But they are related. Please note that sales transactions do not necessarily involve an immediate transfer of cash. Providing the requested product or service creates a sales transaction, even if payment is not made immediately.

Conversely, a receiving transaction requires a business to receive cash. Therefore, when you receive payment from a customer for that sales transaction, you record a receipt transaction.

How to record business transactions

All business transactions must be recorded in the company’s financial records.

This process is known as bookkeeping. Inaccurate bookkeeping can cause many problems for business owners, including: ability to pay Problems and inaccurate tax returns.

A company’s bookkeeping is like a flowchart, with the following steps:

1. Identify when business transactions occur
2. Quantify the financial impact of transactions
3. record transactions
4. Preparation of financial statements

Step 1: Identify when business transactions occur

Understand your business and know when business transactions occur.

Perhaps an electronics e-commerce store receives the 100 Samsung cell phones it ordered, a bakery receives payment for the pastries it sells, or a company pays its employees’ salaries.

Step 2: Quantify the financial impact of the transaction

Review relevant documents such as invoices, receipts, and contracts to determine which financial accounts will be affected and to what extent.

Step 3: Record the transaction

Transactions via journal entries financial ledger. Include details such as transaction date, items purchased, and amount paid.

Step 4: Create financial statements

financial statements It is created on a regular basis (often monthly, quarterly, or yearly).

Businesses prepare income statements to figure out how much profit they made or how much they lost. Businesses also create balance sheets to keep track of their assets, liabilities, and assets. capital.

Easily manage your business transactions with Shopify Balance

Technology has made it easier to record, monitor, and analyze business transactions. E-commerce companies can use Shopify balance Manage your business’ finances in one place.

Shopify Balance integrated into your Shopify admin:

• No fees
• No minimum balance required
• Get paid up to 7 days faster than your bank
• Automatically withhold sales tax
• Sync with accounting software
• There are mobile apps that let you manage your money on the go.
• Receive cashback on eligible purchases
• Get complete visibility into your business’ finances

Technology has made it easier to record, monitor, and analyze business transactions. Additionally, e-commerce businesses can use Shopify Balance to manage their business finances in one place. Shopify Balance integrated into your Shopify admin: No fees No minimum balance required Get paid up to 7 days earlier than your bank Automatically withhold sales tax Sync with your accounting software Manage your money on the go We have a mobile app that gives you cashback on eligible purchases and gives you complete visibility into your business’ finances.