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Business transactions are exchanges of valuables that affect a company’s financial position, recorded through accounting and categorized for tax purposes. Governments require companies to track all transactions, particularly for sales and revenue taxes, and pay special attention to cash-heavy businesses to prevent tax evasion and money laundering.
A business transaction is an exchange of valuables that affects a company’s financial position, such as the exchange of money for goods or services. It is the basic activity that defines the status of being in business. Accounting is the process of recording all business transactions over time, placed into categories for tax purposes.
Each single instance of an exchange of goods or services for a valuable consideration, such as cash, is a separate business transaction that is important to record fully. The transaction record is made up of the documents that support the exchange and the accounting that places the exchange into categories that an accountant can later summarize for financial reporting. This process underpins many of the company’s legal obligations, particularly in relation to taxes.
Most jurisdictions that tax business sales or income require you by law to track all business transactions. While how a company conducts its business and manages its accounting is its own decision, tax authorities typically require a company to keep records of transactions contemporaneous with sales. This means that it is unlikely to be sufficient to recreate a year-end sales record if audited by the authorities. The posthumous creation of records of business transactions can be illegal when linked to an attempt to defraud the government.
National and local governments can assess sales and revenue taxes that are wholly dependent on the business that correctly reports all revenue and substantiate the reports with its business transaction record. Keeping track of transactions typically entails providing a record of orders or invoices generated and received and any sales receipts issued. In a retail environment, a customer will likely place an order in person and receive a piece of paper as a receipt for the purchase. The store will also generate a copy of the receipt which is kept in its system.
Sales tax, in particular, is so important to governments that assess this type of tax that they pay special attention to companies that conduct business primarily in cash. A business transaction may include payment by cash, check, or an electronic method such as a credit or debit card, or through a third-party facilitator over the Internet. Cash payments are the only type of payment that leaves no automatic paper trail. Consequently, cash-heavy companies are popular vehicles for tax evasion and money laundering.
Asset Smart.
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