Transactions and Business Activity

Date: 2015-10-07; view: 465.

Transactions and Accounting Data Collection Procedures.

The study of accounting procedures is largely the study of means for collecting data on transactions. A record of data on past, present, and future transactions provides a means for describing business activities. Since business activities are directed toward the objectives of acquiring and using economic resources, traditional accounting procedures normally measure transactions in terms of the monetary worth of the resources involved in the transactions. They provide for the classification of the transactions in such a way as to reveal the nature of the business activity involved. In communicating measured information to others, accounting procedures represent means for disclosing transactions in terms of busi­ness efforts and business accomplishments and the resulting economic resources and rights in the entity. While the following discussion is primarily a description of historically conventional methods for collecting data on external exchange transactions, it is applicable to all types of transactions.

The validity of the assumption that business activities of all types ultimately result in transactions is most important to the double-entry recording process. If the "lag" between a business activity (e.g., making shoes for a customer) and the transaction (delivery of the shoes to the customer) were substantial, the criticism could be made that the accounting recording process is inadequate and should abandon the transaction concept. However, there is no reason to think that the lag between a business activity and the resulting transaction is so great that the transaction concept cannot be used. Undoubtedly, as electronic data processing develops, it will be possible by the accrual process to eliminate much of the lag when it does exist.

To prevent the development of a "lag" between a business activity and a transaction, accountants have defined a transaction in a special way: they have adopted the concept of an accrued transaction and use it to record business activity prior to the date the actual transaction occurs. There is apparently no limit to the use of the accrual concept; there are, however, certain conventions governing its use under the man­ual recording double-entry system. The concept of an accrued transaction as it is used for double-entry recording can best be explained by discussion of the four types of transactions.