A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 50 - 50 of 93

Question 50

Question

MCQ▾

Main feature of business transaction is:

Choices

Choice (4)

a.

It results in a change in the financial position of the firm

b.

Change must be capable of being expressed in terms of money

c.

It involves an economic activity

d.

All a., b. and c. are correct

Answer

d.

Explanation

A business transaction refers to an economic activity of the business that brings a change in the financial position of the firm. Business transaction brings about a change in the values of certain assets, liabilities, or capital.

The chief features of a transaction are:

  • It involves an economic activity. For example, goods are purchased or sold for cash or on credit basis, salaries paid to employees, interest paid on money borrowed from the bank or any business transaction taking place. Social activities are not a part of business transactions
  • Transactions may be classified into two types — external and internal. External transactions involve economic activities between two independent business entities for example, sale or purchase of goods. Internal transactions refer to those economic activities that take place entirely within one business enterprise like, depreciation charged on fixed assets.
  • The change must be capable of being expressed in terms of money. Loss of goods by fire or the loss due to a customer՚s inability to pay are transactions because the losses can be measured in terms of money
  • It results in a change in the financial position of the firm - a change in the large, but since it cannot be measured in terms of money, it will not be a business.

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