How many types of business transactions are there in accounting?

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In accounting, business transactions can be categorized into two main types:

  • External Transactions: These transactions involve interactions between the business entity and external parties. External transactions impact the company's financial position and are recorded in the accounting system. Examples of external transactions include the sale of goods or services to customers, the purchase of inventory from suppliers, obtaining a loan from a bank, or paying salaries to employees.
  • Internal Transactions: Internal transactions, also known as non-economic transactions, are events that occur within the company but do not involve external parties. These transactions are not recorded in the accounting system because they do not have a financial impact on the company's overall position. Examples of internal transactions include transferring goods between company departments or adjusting inventory levels for internal use.

It's important to note that while internal transactions are not recorded in the accounting system, they are often tracked for management purposes and to aid in decision-making. However, they do not directly affect the company's financial statements and are not reported to external stakeholders.