What is Business Transaction?

A business transaction refers to any activity that involves the financial exchange of money or goods between two or more parties.  It can involve the exchange of goods, services, or money. A business transaction is “The movement of money and money’s worth form one person to another”. Or exchange of values between two parties is also known as “Business Transaction”.

For example, if a company sells a product for cash, the transaction will impact both the sales revenue and the cash balance of the company, a customer purchasing a product from a business, a business purchasing raw materials from a supplier, or a business paying wages to employees are all examples of business transactions.

 

Key Characteristics of Business Transactions:

• Money Involved: Money or money’s worth must be exchanged.
• Impact on Financial Records: Each transaction will affect at least two accounts in the accounting system (one will be debited and the other will be credited).
• Documented Evidence: Business transactions are usually supported by documents like invoices, receipts, purchase orders, etc.

 

2. Credit Transactions

These transactions occur when payment is made at a later date. Here, the buyer receives goods or services now and agrees to pay in the future. Credit transaction is a exchange for goods and services and paid in future.

Example:

• You purchase raw materials worth ₹10,000 from a supplier, but you agree to pay the supplier in 30 days.
• You sell goods to a customer for ₹5,000 and they promise to pay you within a week.

 

How to Record Business Transactions in TallyPrime?

In TallyPrime, every business transaction is recorded using Journal Entries. To record a transaction in TallyPrime:

1. Select the Voucher Type:- For business transactions, you can use different voucher types such as Payment Voucher, Receipt Voucher, Purchase Voucher, and Sales Voucher, depending on the nature of the transaction.
2. Identify the Accounts Affected:-Every transaction will affect at least two accounts, so you need to identify which accounts are involved. For example, if you are making a cash sale, the  affected accounts will be Cash and Sales.
3. Debit and Credit the Accounts:- Apply the Golden Rules of Accounting to determine which account should be debited and which one should be credited.

 

Examples of Business Transactions in TallyPrime

 

Example 1: Cash Purchase
Transaction: Purchased office supplies worth ₹2,000 and paid in cash.

Accounts Involved:

1. Office Supplies Account (Real Account)
2. Cash Account (Real Account

Explanation:-

• Since office supplies are coming into the business, the Office Supplies A/c is debited.
• Cash is going out of the business, so the Cash A/c is credited.

 

Example 2: Cash Sale
Transaction: Sold goods for ₹5,000 and received payment in cash.

Accounts Involved:

1. Sales Account (Nominal Account)
2. Cash Account (Real Account)

 

Explanation:

• Cash is coming into the business, so the Cash A/c is debited.
• The income from sales is earned, so the Sales A/c is credited.

 

Example 3: Credit Purchase
Transaction: Purchased raw materials worth ₹12,000 from a supplier on credit.

Accounts Involved:

1. Purchases Account (Nominal Account)
2. Accounts Payable (Personal Account)

Explanation:

• Since raw materials are coming into the business, the Purchases A/c is debited.
• The amount is due to the supplier, so the Accounts Payable A/c is credited.

 

Example 4: Credit Sale
Transaction: Sold goods for ₹8,000 on credit to a customer.

Accounts Involved:

1. Accounts Receivable (Personal Account)
2. Sales Account (Nominal Account

 

Explanation:

• Since goods are sold on credit, the Accounts Receivable A/c is debited.
• The income from sales is credited to the Sales A/c.

Business transactions are the backbone of accounting, and understanding how to record them is essential for managing finances in TallyPrime. By following the simple steps of identifying accounts, applying the Golden Rules, and using journal entries, you can efficiently record all your business transactions.