Introduction To Accounting: Part 3: Financial Information And Business Transaction

Financial Information:

Financial Information arises from Business Transactions. So, let us first understand what are Business Transactions.

Business Transaction:

1. The term “Business Transaction” means a financial transaction or event entered into by two parties and is recorded in the books of account.
2. It is a financial event expressed in terms of money which brings a change in the financial position of an enterprise.
3. It is an agreement between two parties involving the transfer or exchange of goods or services.
4. Examples of business transactions are:
   1. Sale of Goods
   2. Purchase of Goods
   3. Receipt from Debtors (Debtor: A customer who owes money to the Business)
   4. Payment to Creditors (Creditor: A supplier to whom the Business owes money)
   5. Payment of Interest on Loan taken
   6. Purchase of Diesel for Generators
   7. Conveyance Expenses, etc.

So, a business transaction gives rise to Financial Information. Now, the last process in the definition of Accounting is Communicating the Financial Information. Since Accounting helps in Communication, it is known as the “Language of Business”.