Question

Write rules of identification of cash and credit transaction.​

Answer 1

The words "on credit" or "on account" are mentioned in the transaction. ... The name of the seller or buyer is mentioned in the transaction and the word "Cash" is not mentioned. For example, Bought goods from A worth $5000. Every business transaction brings a double change in the financial position of the business.

Answer 2

Answer:

Cash transaction:

A cash transaction is a business transaction that involves exchange of cash at the time of occurrence of the transaction itself. Cash in this case implies settlement – the settlement may be in actual cash, by credit or debit cards, check payment or bank transfer but would still qualify as a cash transaction if they are settled at the time of occurrence of the transaction itself.

Any business transaction can qualify as a cash transaction if it involves immediate settlement in cash. For example, over the counter sale of goods involves exchange of goods for cash at the time of the sale transaction itself thus qualifies as a cash transaction. This transaction would qualify as cash transaction irrespective of whether it is paid for by cash or by a debit or credit card.

Cash transactions are recorded in books of accounts in both cash basis and accrual basis of accounting. These transactions have an immediate effect on the cash flow of the business.

Credit transaction:

A credit transaction is a business transaction which although has monetary impact does not involve exchange of cash at the time of occurrence of the transaction, but is settled in cash at a subsequent date.

Credit transactions result in creation of asset (receivable) or liability (payable) in the books of accounts. This asset or liability is extinguished from the books at the time of settlement.

For example, a manufacturer sells his goods to a wholesaler who does not pay for them immediately but is allowed a credit period of 30 days for making payment. This is a credit sale of goods that does not involve immediate cash exchange however it results in recognition of income and creation of a debtor, thus it still has monetary impact and qualifies as a credit transaction.

Credit transactions are only recorded in books of accounts maintained on accrual basis. These are recorded in books maintained on cash basis only at the time of settlement.