What are Accounting Transactions?
Accounting transactions refer to any business activity that results in a direct effect on the financial status and financial statements of the business. Such transactions come in many forms, including:
- Sales in cash and credit to customers
- Receipt of cash from a customer by sending an invoice
- Purchase of fixed assets and movable assets
- Borrowing funds from a creditor
- Paying off borrowed funds from a creditor
- Payment of cash to a supplier from a sent invoice
It is imperative to remember that every transaction should show the balance between the assets and the liabilities, or the debit and the credit, such that a receipt of cash from a customer equals an increase in revenue or that a purchase from a supplier equals an increase in expenses and a decrease in cash.
Types Of Accounting Transactions Based On Institutional Relationship
The types of accounting transactions may be based on various points of view. The first one that we will discuss is the types of accounting transactions according to institutional relationships, namely external and internal transactions.
1. External transactions
These involve the trading of goods and services with money. Therefore, it can be said that any transaction that is entered into by two persons or two organizations with one buying and the other one selling is considered an external transaction. It is also called a business transaction.
Example: If Company A buys raw materials for its production from Company B, then this is called an external transaction.
2. Internal transactions
They don’t involve any sales but rather other processes within the organization. This may include computing the salary of the employees and estimating the depreciation value of a certain asset.
Types of Accounting Transactions based on the Exchange of Cash
Based on the exchange of cash, there are three types of accounting transactions, namely cash transactions, non-cash transactions, and credit transactions.
1. Cash transactions
They are the most common forms of transactions, which refer to those that are dealt with cash. For example, if a company purchases office supplies and pays for them with cash, a debit card, or a check, then that is a cash transaction.
2. Non-cash transactions
They are unrelated to transactions that specify if cash’s been paid or if it will be paid in the future. For example, if Company A purchases a machine from Company B and sees that it is defective, returning it will not entail any cash spent, so it falls under non-cash transactions. In other words, transactions that are not cash or credit are non-cash transactions.
3. Credit transactions
They are deferred cash transactions because payment is promised and completed at a future date. Companies often extend credit terms for payment, such as 30 days, 60 days, or 90 days, depending on the product or service being sold or industry norms.
Types of Accounting Transactions based on Objective
There are two types of accounting transactions based on objective, namely business or non-business.
1. Business transactions
These are everyday transactions that keep the business running, such as sales and purchases, rent for office space, advertisements, and other expenses.
2. Non-business transactions
These are transactions that don’t involve a sale or purchase but may involve donations and social responsibility.
3. Personal transactions
Personal transactions are those that are performed for personal purposes such as birthday expenditures.
What Are the Different Types of Accountants?
Despite what many believe, an accounting career can involve far more diverse work than adding piles of receipts or dealing with tax returns all day. If filling out tax forms doesn’t appeal to you, we have some great news: the world of accounting has expanded—pursuing a future as an accountant doesn’t mean you’ll do nothing but calculate people’s deductions every year (although managing tax returns is still a very important role for most accountant positions). This profession continues to grow, and it provides interested individuals the opportunity to work in exciting industries, each with its own earning potential.
A staff accountant is a great option for anyone who has a bachelor’s degree in accounting and who wants a variety of work. Staff accountants generally report to a CPA, creating financial reports and analyzing financial data. Depending on the size of the organization, a staff accountant may also be tasked with both accounts payable and accounts receivable management, creating a budget, and reconciling bank accounts. Generally, staff accountants also work to ensure that the organization is compliant with financial regulations that affect their particular industry. As a staff accountant gets more experience in an industry, they may also be called on to create financial forecasts.
Certified Public Accountant
Although certified public accountants (CPAs) are best known for their work on both federal and state taxes, they manage much more than that. In many industries, a CPA may be hired to manage the organization’s staff accountants. Because a CPA has an extensive, focused education that required the passage of specialized exams, they’re often treated as an organization’s financial advisor. They may also oversee audits or reviews. CPAs may also specialize in certain fields, such as forensic accounting.
Another excellent accounting career option outside of the tax realm is that of an investment accountant. An investment accountant works in the financial industry, usually with an investment brokerage or asset management firm. In addition to knowing the basics of accounting (including how certain assets and investments may impact a client’s taxes), they must also be knowledgeable about the investment opportunities that the organization offers. It is often the responsibility of the investment accountant to ensure that the organization is in compliance with state and federal regulations that impact the industry. They may also help the organization improve its financial strategy.
Individuals interested in becoming an investment accountant would benefit from taking economics, financial management, financial accounting, cost accounting, auditing, corporate accounting, and taxation. It’s also important to review the requirements in the state where they wish to work to learn whether they will need a specific license because they are working with or for an investment company.
Project accountants are hired to work on specific projects. Depending on the organization for which they are hired, they may be a long-term employee or a contractor brought in specifically to manage one specific objective. Of course, a great working relationship for a single project could also result in both repeat work and referrals. Project accountants oversee anything that might be involved with the effort. This includes, but may not be limited to, preparing invoices, collecting on invoices, approving expenses, approving billable hours provided by others, planning and maintaining project budgets, and helping ensure that the project is completed by the deadline.
A cost accountant is similar to a project accountant in that their goal is to help ensure that cost efficiency is met. However, a cost accountant isn’t usually hired on a per-project basis, but rather by organizations that require assistance in managing their supply chain profitability and their budgets. Cost accountants analyze labor costs, the cost of materials, the costs associated with shipping, production costs, and other costs related to the supply chain. The purpose of their efforts is to identify areas that can be made more efficient.
Individuals interested in becoming a cost accountant would benefit from taking cost accounting, auditing, corporate accounting, risk management, supply chain management, and managerial accounting.
A management accountant analyzes the financial standing of an organization and how it could impact the company. The management account may also then provide specific advice on how to improve the organization’s financial health. Management accountants are directly involving in budgeting, external financial reporting, risk management, and performing profitability analyses. It is also important for a management accountant to have the interpersonal and professional skills required to present their information to executives in a manner that is easily understandable.
Individuals interested in becoming a management accountant should study risk management, managerial accounting, cost accounting, auditing, corporate finance, taxation, and interpersonal communications. After completing a bachelor’s degree, individuals must then take and pass the certified management accountant (CMA) exam.
Forensic accounting is a special area of practice in accountancy where accounting, auditing, and investigative skills are used to assist the court in legal matters. Forensic accountants are also known as forensic auditors or investigative auditors. They investigate white-collar crimes including issues like securities fraud, embezzlement and bankruptcies.
Accounting consultants are persons with high subject matter expertise in preparing financial reports, pro-forma financial statements and reports. They also analyze, interpret and evaluate financial statements and reports for various regulatory and statutory authorities and internal management of organizations. Accounting consultants can help a business with all of its financial needs.
Auditors ensure that organizations are correctly recording their financial information. Many industries require that organizations operating within them perform at least one external audit, conducted by someone who is not an employee, each year. Auditors review financial statements, account books, accounting systems, and fiscal records to ensure that the business is complying with all applicable financial regulations. They also generally provide recommendations to the organization if there are issues that must be resolved or recommendations to help prevent future issues.
Individuals interested in becoming an auditor would want to take courses in auditing, risk management, forensic accounting, managerial accounting, corporate finance, and corporate accounting. They may also wish to seek certification as an auditor after completing their degree program.
Individuals looking to do something different with their accounting degree may find a fulfilling and successful career as a financial advisor. Financial advisors provide investment and financial-planning services to individuals as well as to businesses. The goal of a financial advisor is that of a CPA: their goal is to improve their client’s financial standing. Financial advisors talk with their clients, create plans that assists clients in meeting their financial goals, and follows up with them over time to adjust plans as needed. Financial advisors who work for businesses will look at the company’s financial statements and other information to determine how best to improve the company’s financial standing.
Individuals interested in becoming a financial advisor would want to study risk management, taxation, supply chain management, financial management, corporate finance, and managerial accounting. They may also be required to obtain specific licenses to work as a financial advisor.
A financial consultant is an individual who is skilled in finance and who can help individuals or organizations make sound financial decisions. A financial consultant may be self-employed, be hired by a particular organization because of their skill set, or work for a company that provides financial consulting. They may prepare and review financial reports, analyze financial statements, and help ensure compliance with regulations where necessary.
Taxation, risk management, supply chain management, cost management, managerial accounting, and auditing are courses useful to future financial consultants.