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NEW TO ACCOUNTING
BUSINESS ENTITY RULE AND TRANSACTIONS
  
Any business activity, which has a financial implication, constitutes a transaction. Transactions are those financial activities, which are encountered by a business with another party. These data of these financial transactions are detailed in source documents. These source documents details the nature of the transaction and only those applicable to the business, should be recorded in the accounts. The business entity rule implies that your personal transactions should be kept separate from the business.

Private transactions can be illustrated as follows:
  • If you, a business owner, buys a computer, which you want to use at home for your own private purposes (e.g. to play games), then you have received or gained a computer and in the process you gave cash or lost some cash.

  • If you sell the computer, you have received or gained some cash, and in the process you have lost a computer. This transaction cannot be recorded in the books of the business or organisation, but in your personal or private accounts at home. This is a private transaction, and consequently it has got nothing to do with the business.
These are private transactions, and consequently it has got nothing to do with the business and may not be recorded in the business' accounting records. You may record these transactions in your own set of personal accounts.

 

Business transaction can be illustrated as follows:
  • However, should the business or organisation buy a computer, the business or organisation have received or gained a computer and in the process the business or organisation gave cash or lost some cash.

  • If the business or organisation sell the computer, the business or organisation have received or gained some cash, and in the process the business or organisation have lost a computer.
These transactions would then be recorded in the books of the business or organisation.