Question

Is it necessary to classify the transaction?

Answer 1

In understanding accounting, you need to be very clear about which classification of business transaction you’re looking at. Businesses are profit-motivated, so one basic type of transaction is obvious: profit-making transactions. In a nutshell, profit-making transactions consist of making sales and incurring expenses.

A business may have other income in addition to sales revenue, and it may record losses in addition to expenses. But the bread and butter profit-making activities of a business are making sales and keeping expenses under control. The profit-making transactions of a business over a period of time are reported in its income statement.

Answer 2

Answer:

understanding accounting, you need to be very clear about which classification of business transaction you're looking at. Businesses are profit-motivated, so one basic type of transaction is obvious: profit-making transactions. In a nutshell, profit-making transactions consist of making sales and incurring expenses