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1.7       What is a business transaction and how does it relate to the accounting process? Illustrate the concept of a business transaction with five examples relating to a provider of Chinese therapeutic massages.

A business test bank transaction can be defined as external exchanges of resources between the entity and another entity or individual that affects the assets, liabilities and owners’ equity items in an entity. The accounting process is the identifying, measuring and communicating of economic information about an entity to a variety of users for decision-making purposes. The first component of the process is the identification of business transactions which are then measured and communicated to the different users of financial reports.

Business transactions for a provider of Chinese therapeutic massages include the following:

1. The contribution of capital by the owner to test bank commence the business. This transaction would increase cash (asset) and increase capital (equity).

2. The purchase of equipment (massage tables, massage chairs) on credit. This transaction would increase equipment (asset) and increase creditor (liability).

3. The payment of building rent. This transaction would decrease cash (asset) and decrease profit (equity).

4. The purchase of office equipment for cash. This transaction would increase office equipment (asset) and decrease cash (asset).

5. Withdrawal of business funds by owner. This transaction would decrease cash (asset) and increase drawings/decrease capital (equity) for test bank is also available.

In differentiating between textbook solutions financial accounting and management accounting it is important to consider the users of financial information — both internal and external users. Financial accountants prepare and report information for external users (for example prospective investors or the tax office) and as such are subjected to regulation from GAAP, the Corporations Act and in some cases the ASX through their Listing Rules. Management accountants are concerned with the effective use of an entity’s resources, and in so doing assist the manager/s (i.e. internal users) of the entity in achieving their goal of enhancing customer and shareholder value. Therefore the management reports generated need to be up to date to be effective. Regulation in management accounting is much less formal and in some areas rules are basically non-existent. Ultimately there will be interaction between the financing accounting and management accounting areas. The information provided by management accountants will provide information for internal users that will be reflected in the financial reports used by the external users. See Table 1.3, page 10, for a detailed list of the differences between textbook solutions financial and management accounting.

Users of accounting information (both internal and external) require accounting information to assist them in the decision making process. External users such as investors, employees, banks, suppliers, government agencies (e.g. ATO) all have their own specific information needs. A potential investor will require past profits and future profit projections, as well as future growth prospects, to determine if the entity is a good investment proposition or not. Lenders will be seeking details of the level of risk it is exposing itself to by lending money to the entity plus the prospects of the entity repaying its’ debt textbook solutions is also available.

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