Affect of Transactions in Business   

After learning all terminology, you would have been able to understand all terms of accounting

I hope so!

   Kind of Transaction   

There are two types of transactions are used in every business.

1. Internal transactions
2. External transactions

   1. Internal transactions   

Internal transaction are those transaction by which internal events of the business are affected such as read the below internal transaction which ate showing affect in business

1. Purchase of merchandise for: affects the assets side only; increase in an asset – merchandise and decrease in another asset – cash.
2. Sale of merchandise on cash which we bought; affects the asset side only; increase in asset – cash and decrease in another asset merchandise.
3. Payment for any expense, affects assets – expenses; increase in expenses and decrease in assets cash / bank.
4. Received cash as income earned, affects and income; increase in assets cash and increase in income.

   2. External Transaction   

External transactions are those transaction by which the external parties are affected in the business assets such as,

1. Purchase of merchandise on credit affects the assets and liabilities; increase in an asset – merchandise and increase in liability.
2. Sale of merchandise on credit, affects the assets only; increase in as asset – accounts receivable and decrease in another asset – merchandise.
3. Investment by the owner in the business affects assets and proprietorship both; increase in assets case or any other assets invested by the owner and increaser in proprietorship – Capital.
4. Expenses incurred but not paid, affects the expenses and liabilities.
5. Amount receivable for income earned, affects assets and income; increase in assets accounts receivable and increase in income.





   How Is a Transaction recorded in Book of Account?   




Date	Description	Ref	Debit	Credit
25/10/010	Purchase	-	50,000/-
-	cash			50,000/-
	(purchase on cash)




There are for columns are used to record a truncation in “JOURNAL”



1. Date,
2. description,
3. reference,
4. debit
5. credit




   1. Date   

Whenever a transaction occurs, we record it as well as its date in the book of account.





   2. Description   

For further explanation of a transaction, we must write a strong description.





   3. Reference   

A column of reference shows a relationship between the books of accounting.





   4. Debit   

Increase in an asset account is recorded on the debit side.

• Decrease in a liability account is recorded on the debit side.
• Decrease in a proprietorship account is recorded on the debit side.
• Decrease in a revenue/income account is recorded on the debit side.
• Increase in expense account is recorded on the debit side.




   5. Credit   

• Decrease in an asset account is recorded on the credit side increase in a liability account is recorded on the credit side. Increase in a proprietorship account is recorded on the credit side.
• Increase in a revenue/income accounts is recorded on the credit side.
• Decrease in an expense account is recorder on credit side.




   Rules for debit and credit   

Debit	Nature of Accounts	Credit
Increase	assets	decrease
Decrease	liabilities	increase
Decrease	proprietorship	increase
Decrease	revenue/income	Increase
Increase	Expenses	decrease