Two Types of Business Transactions In Accounting

We already studied about “What is a Transaction” and “Difference Between Capital And Revenue” but here we will consider the 2 Types / Kinds of Business Transactions used in accounting according to the character / feature of transactions.

These are Capital Transactions and Revenue Transactions. Capital Transactions have long-term effect because these can be used for long period of time or more than one year. Examples are Purchase of Furniture, Machinery, Buildings, etc are Capital Transactions. Revenue Transactions have short-term effect because these are used for short time mostly less than or equal to one year. Examples include Paid Rent Expense, Salaries Paid, Goods sold for Cash, etc.

Expenditures are the outflows as our business is spending the money to get benefit in future while Receipts are receiving of the money as our business provides services to customers or sold the Assets or receive other income.

As in a Business Transactions there is always a exchange i.e. one is going from business (Outflow) and one is coming into the business (Inflow), so both of these Capital and Revenue transactions further divided into two types:

Capital Transactions may be Capital Expenditure that is outflow or Capital Receipts that is Inflow while Revenue Transactions include Revenue Expenditures (Outflows) and Revenue Receipts (Inflows).

Capital Expenditures provides benefit for more than one year. Example are Purchase of Plant & Machinery, Furniture, Building, Office Equipment, Cost of Goodwill, Patents, etc.

Capital Receipts are inflows to the business and continue for current accounting period or less than or equal to one year. Example include Cash or Goods invested into the business by Owner, Bank Loans, Sale Proceeds of Fixed Assets / Non Current Assets, etc.

Revenue Expenditures provides benefits less than or equal to one year. Examples include Paid Rent, Salaries Paid, Cash Paid, Wages Paid, etc.

Revenue Receipts received by the business regularly within the current Accounting Cycle or less than or equal to one year. Examples include Cash Sales, Rent Received, Commission Received, Fees Received, etc.

You Can Also Read Out, “Expenditures VS Expenses”

So, at the end we can say that these 2 types of Business Transactions are the basics of Accounting System. Once the invoice is received by the Accounting Department, the whole Accounting Process (Steps of Accounting Cycle) starts.