Generally, any instance of buying and selling something is considered a business transaction, which is true, but half true. Business transaction is a broader term which definitely includes buying and selling, but there are a lot of other transactions. We can define business transaction as any event or activity that influences either the financial position or financial performance of the business.
To make it clearer, let’s go through some of business transactions that are common in almost every business.
- Purchasing non-current assets
- Purchases inventories
- Paying expenses
- Paying salaries
- Making sales
Purchasing non-current assets
Not every day, but from time to time, businesses need to spend money to buy fixed assets (non-current assets). Businesses need to have set up to run its operations which require it to purchase assets such as buildings, furniture and fixtures, vehicles, computers, printers, and other office equipment etc. Although, some of these items can be arranged on lease, but most of the business would purchase some kinds of fixed assets. For manufacturing companies, plants and machineries will also be required to manufacture products.
As most of the non-current assets are high value items, detailed procurement process is usually followed. Authorization for such purchase is typically required from senior management.
Manufacturing businesses need raw material and stores and spares to be used in the factory. Similarly, retail and whole sale businesses also need to purchase inventories. Even service providers also need to purchase different items to do their jobs, for e.g., an auditor needs paper, printing cartridge, stationery etc. for conducting the audit and to send the audit report to the audit client.
In order to run the day-to-day operations, businesses incur a variety of expenses, such as:
- rent and rates
- utility bills (electricity, gas, telephone, internet etc.)
- advertisement expenses
- insurance expenses
- entertainment of staff
- repair and maintenance
To control these expenses, the bill must be checked and the payments must be authorized at appropriate level of management. Furthermore, these expenses should be recorded by the Accounts department on timely basis to provide accurate information to the management.
All businesses need employees and employee work to earn salaries. There can be different structures of processing payroll. Businesses may choose daily, weekly, or monthly intervals after which remuneration is paid to the employees.
All businesses make sales. In fact, all of the above transactions are made by businesses in order to deliver goods or services to their customers i.e., to earns sales revenue.
You can have a look at our post “business transactions” for some other examples of transactions.