What is an accounting transaction?

An accounting transaction is a business event having a monetary impact on the financial statements of a business. It is recorded in the accounting records of the business. Examples of accounting transactions are:

• Sale in cash to a customer
• Sale on credit to a customer
• Receive cash in payment of an invoice owed by a customer
• Purchase fixed assets from a supplier
• Purchase consumable supplies from a supplier
• Investment in a business
• Borrow funds from a lender
• Issue a dividend to investors
• Sale of assets to a third party

Every accounting transaction has to follow the dictates of the accounting equation, which states that any transaction must result in assets equaling liabilities plus shareholders' equity. For example:

• A sale to a customer results in an increase in accounts receivable (asset) and an increase in revenue (indirectly increases stockholders' equity).
• A purchase from a supplier results in an increase in expenses (indirectly decreases stockholders' equity) and a decrease in cash (asset).
• A receipt of cash from a customer result in an increase in cash (asset) and a decrease in accounts receivable (asset).
• Borrowing funds from a lender results in an increase in cash (asset) and an increase in loans payable (liability).

Thus, every accounting transaction resulted in a balanced accounting equation.

Accounting transactions are either directly or indirectly recorded with a journal entry. The indirect variety is created when you use a module in the accounting software to record a transaction, and the module creates the journal entry for you. For example, the billing module in the accounting software will debit the accounts receivable account and credit the revenue account every time you create a customer invoice.

Related Topics

The accounting cycle
The accounting equation
Accounting journal entries
Debits and credits
The trial balance