What are business transactions?
Accounting is the language of a business. Transactions in accounting are the data needed to be processed to give information to decision-makers. Business transactions are economic activities that occur within an entity. It can also be referred to as the qualitative and quantitative data that can be gathered within an organisation from business events.
Types of transactions and examples
There are primarily two types of transactions. These are financial and non-financial. However, we have explained four of them in accounting.
Qualitative transactions
These are business activities that cannot be measured numerically. An example is inherent Goodwill. It is clear that the entity has a good reputation but this cannot be quantified. Another example is the organisation culture, which the employees embrace, but its measurement isn't possible.
Quantitative transactions
Economic activities that can be measured in numbers. This is not limited to money. It can include the number of staff, customer base, number of suppliers, and so on. An example is labour turnover; while the computation is not in monetary terms, it is still quantitative data.
Financial transactions
An economic event that is measurable in money terms.
All financial transactions are quantitative in nature but not all quantitative transactions are financial data.
– Jeremiah
This is because quantitative transactions include money measurement as a subset. But there are other numerical measurements as stated above. An example of a financial transaction is the total revenue of an entity.
Non-financial transactions
The final type of transaction accounting that we will discuss is non-financial. Here, the economic activities produce data that are not measurable in monetary terms. But can be either qualitative or quantitative or both. Data such as the number of customers' emails are non-financial data.
Importance of transactions in accounting
Data is necessary for the preparation of profit or loss and balance sheets. Without data, decision-making will be based on past experiences and hunch or guesswork. Also, business owners cannot know what's happening in the entity. The debts owed by customers will be unclear, and so will the debts owed to suppliers and vendors.
More so, transactions paved the way for organization growth and planning. Businesses, whether small or large, will strive when data is available to them. Investors use business data derived from business activities to know whether to invest in them. Auditors cannot function properly where data is not available.
