Today we are going to start a series of articles on Economic and Financial systems where the purpose is to discuss and introduce readers to understand these in simple manner and get the insight of every matter which I will discuss for understanding on different topics.
The Economic system is running on financial dealings which occur through transactions made by anyone through using channels of financial institutions and banks.
Economic System
The economic system which requires Financial dealings everywhere in the world at large and specific to the domestic need of country requires Financial dealing ways to do things at ease from anywhere. The Financial System has many further categories for the public and businessmen.
Financial System Defines as
A financial system is an economic arrangement wherein financial institutions facilitate the transfer of funds and assets between borrowers, lenders, and investors. Its goal is to efficiently distribute economic resources to promote economic growth.
Financial Institutions:
The Financial institutions and Banks are being used to do all financial dealings at the domestic level of any country as well as at world level at large to do economic activity through these institutions to do different Transactions for any purpose.
Transactions been made from purchasing supplies and selling products and services to borrowing money from a creditor, account transactions occur in business every day. Every company or individual use various transactions. Dealing with financial matters, understanding of these transactions is important because they affect a company’s financial status and statements. In this article, we define accounting transactions and explain the different types of transactions and will share common examples to help you identify these transactions more easily.
What are the accounting transactions:
Accounting Transactions are any business activities that affect the company’s financial statements and status. Any exchange of money is an accounting transaction. Companies document these transactions in a number of ways, such as spreadsheets or invoices to keep track of their finances.
Some examples of these transactions
- Receiving cash or credit from a customer for selling them a product or service
- Borrowing products from suppliers local or at an international level
- Investing in another business
- Paying off borrowed funds
- Paying employees salary
Types of account transactions
The Types of Account Transactions are given for understanding as well,
External transactions:
An external transaction, also known as a business transaction, is a trade of goods and services for money. One party is buying a product or service while the other party is selling it. This transaction can be between two people, two organizations, or a person and an organization. For example, a customer purchasing a hammer from a hardware store or a business purchasing equipment from a supplier are external transactions.
Internal transactions
An internal transaction is any financial activity that occurs within an organization rather than with a third party. It is typically an exchange of finances between departments or the company and its employees. Internal transactions aren’t sales like external transactions are, but they affect the company’s finances. An employee receiving their salary or a department giving office supplies to another department are examples of internal transactions.
Cash transactions
Cash transactions are one of the most common types of transactions that businesses make. They refer to any transaction that involves the exchange of cash. It doesn’t have to be physical money; it can include debit transactions or cheques as well. A cash transaction is a type of external transaction. An example of this is a restaurant purchasing ingredients from their supplier and paying them in cash. Another example is a customer purchasing a cup of coffee from a cafe and paying with their debit card.
Non-cash transactions
A non-cash transaction is any type of financial transaction that doesn’t involve the exchange of cash or credit. Businesses still record these transactions in their financial statements as they impact the company’s income or expenditure. An example of a non-cash transaction is a company that takes over a loan from another company in exchange for an asset, such as a share. Another example of a non-cash transaction is a company converting its bonds to another type of asset of equal value.
Credit transactions
Credit transactions occur when a creditor or lender supplies a company with goods, services, money, or securities in exchange for a deferred payment. Both parties agree to a payment plan, which typically includes a date the borrower needs to complete their payment. Some credit transactions include interest the borrower needs to pay on top of the original amount they borrowed.
An example of a credit transaction is a customer purchasing an Air conditioner from an Electronic store and paying for their purchase every month for 18 months, rather than paying the total amount upfront. Another example is a business taking out a loan from a bank and paying it back over five years while also paying a 10% interest rate.
Business transactions
Business transactions are day-to-day transactions that companies make to keep the business running. This can include sales and purchases, such as the external transactions we discussed, but also rent for office space, money spent on advertising, and other expenses. An example of a business transaction is a company hiring an external consultant to improve its marketing strategies. Another example of a business transaction is a company buying new electronic equipment for their restaurant.
Non-business transactions
Non-business transactions are transactions that companies make that don’t involve a sale or purchase, such as giving donations or fulfilling social responsibilities. A company hosting a charity event and donating the money they make is an example of a non-business transaction. Another example of a non-business transaction is a company sending their employees to volunteer for a cause instead of working for a day.
Personal transactions
Personal transactions occur when employees or businesses spend money for personal reasons. For example, a department throwing a birthday party for one of their employees is a personal transaction. Some companies require employees to pay for their own personal transactions, while others offer a certain amount of money for personal use.
In the next article we will discuss the ways to record these transactions.
The writer is having vast experience in Banking and Finance sector for over one and half decade, where during his period of work he has experienced different economic and development initiatives taken for the wellbeing of the public masses through the banking channel.
He has worked for the Microfinance banks which are offering community based services among the under developed segment of the society.
The major work done in Financial Inclusion where several hundreds of people were brought to Banking channel to improve their businesses.
The under served segment of society like woman were given the chances to change their lives through credit facilities to grow their home based businesses which is also an imitative of Women Empowerment.
The Writer has also worked against different social issues and highlighting them for positive change in the society through public awareness and their active involvement to reach to the solution.
This journey of empowering people is on going and is never lasting till the time last person remains underserved.
