126 Accounting: Business Reporting for Decision Making
- purchase of equipment
- payment of accounts payable
- sale of goods to customers
- provision of services to clients
- purchase of accounting software
- charging interest on overdue accounts receivable
- withdrawal of capital
- repayment of short-term loan to financial institution
- cash purchases of office supplies
- payment for advertising.
4.2 Business and personal transactions and
business events
LEARNING OBJECTIVE 4.2 Differentiate between a business transaction, a personal transaction and a
business event.
It is important to distinguish between business transactions, personal transactions and business events.
Business transactions involve an exchange of goods between an entity and another entity or individual.
Personal transactions are transactions of the owners, partners or shareholders that are unrelated to the
operation of the business. Such transactions are not classified as business transactions because they do
not involve an exchange of goods between the business entity and another entity. For example, if the
owner purchases a new iPad for home use, this is unrelated to the operations of the business entity and is
therefore not classified as a business transaction. However, if the owner withdraws business funds to pur-
chase the iPad for home use, it does become a business transaction. The withdrawal of cash for personal
use will be recorded as drawings and so will not be included in the business expenses.
Business events are occurrences that have the potential to affect the entity in some way, but will not be
recorded as business transactions until an exchange of goods occurs between the entity and an outside entity
or individual. Examples of such business events include negotiations between the entity and other entities or
individuals. For example, if the entity negotiates a bank loan for the purchase of a new property, this will not be
recorded as a loan by the entity until the loan is paid out to the business entity. Similarly, if the entity negotiates
for a new employee to commence work from July, and signs a contract for him or her to start at that time, no
transaction is recorded for wages until the employee has completed the first week, fortnight or month of work.
Many business entities now use accounting software to keep a record of their daily transactions such
as cash and credit purchases, cash and credit sales, withdrawals by the owner and capital contributions.
The reality check ‘MYOB software for small businesses’ outlines one of the software options that can
help small businesses keep track of their daily business transactions.
REALITY CHECKMYOB software for small businesses
Most business entities now use accounting software to keep a record of their daily transactions such as
cash and credit purchases, cash and credit sales, withdrawals by the owner and capital contributions.
MYOB produces a number of software products for all different types of business entity use. MYOB
Essentials is an exciting new online accounting software tool popular for new and smaller businesses. It
features a ‘cloud’ accounting service that has a number of important and necessary functions including
payroll management. This allows for collaboration to take place with other entities such as accountants
and lawyers without all parties being in the same place! It’s easy to set up, provides a more accu-
rate view of cash flow and makes tax obligations easier by storing bills and invoices in the business
accounts. The real-time invoice tracking function allows control of the sales process and, with additional
software, credit card and EFTPOS payments can be made at any time in any place.