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Classification of Transaction q 1 Transaction. For example, goods sold to X for cash 5,000. In a cash transaction, the name of the party to whom goods are sold or from whom goods are purchased, is not recorded. This is because, it serves no purpose. Credit transaction: An external transaction not involving immediate cash receipt or payment is called a Credit Transaction. For example, Purchase of goods on credit from Y. In a credit transaction, delivery of goods and receipt/payment of money takes place on two different dates. In a credit transaction, the name of the party is recorded to ascertain how much is owed to or from him. External transaction: A transaction which involves the business entity and a second party is called an External Transaction. For example, goods sold to Ram for 2,000 on credit. Internal transaction: A transcation which does not involve a second party is called Internal Transaction. For example, depreciation charged on machinery. Rules for Determining Cash or Credit Transaction Students sometimes experience a little difficulty deciding whether a transaction is for cash or on credit. The following rules will help: (1) Cash purchases, cash sales and all transactions where the word 'paid is mentioned are to be treated as cash transactions. For example, salary paid, goods sold for cash and so on. (2) When a personal name or the name of a firm is mentioned in the transaction, it will be treated as credit transaction. For example, goods sold to X for 500. (3) When both cash and personal name are mentioned in the transaction, it will be treated as a cash transaction. For example, goods sold to Y for cash 1,000. Illustration 2 State whether the following are cash transactions or credit transactions : 1. Sachin commenced business with

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