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U2 L2-Business Transactions - Business Transactions Every...

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Business Transactions Every day, a business will engage in transactions that change its financial position in some way. For example, the business may purchase a new computer, make a sale to a customer for cash, or pay off a liability. For each of these transactions, the values of the assets and/or liabilities and/or equity have changed. We must have a way to determine, as a transaction occurs, which account values have increased and which account values have decreased as a result of the transaction. A business transaction is defined as a financial event that causes a change in financial position. Here are a few examples: A business purchases new supplies for the office, and pays for them with cash . The value of the supplies account will increase and the value of the bank account will decrease. A business has a bank loan of $10,000 and makes a monthly cash payment, towards its principle, of $1000. The value of the bank account will decrease by $1,000, and the value of the bank loan account will decrease by $1,000. Every transaction should generate some type of business paper that verifies that the transaction occurred, as well as the details of the transaction. This business paper is known as a source document. Some examples include invoices, bills, cheque copies, and receipts. Source documents should be kept on file for reference purposes. GAAP # 4 – The Objectivity Principle The objectivity principle states that accounting for transactions should be recorded on the basis of objective evidence.
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