In accounting, a cash transaction is any business transaction
that involves some form of exchange of money at the moment of
the sale. In accounting, the word cash simply means that the
transaction has been settled immediately. So it doesn’t have to
be a payment involving actual paper currency. A cash transaction
can be in cash, but it can also be a payment made via a credit
card, a cheque, or even a bank transfer. All of those payment
types indicate an immediate settlement of the transaction and
are considered cash transactions. ( )
A good example of this is when a manufacturer provides goods
to a wholesaler. The wholesaler may not have to pay for those
goods immediately and can instead have some form of credit
period. So a sale is made, but no settlement has occurred. So a
credit transaction recognises that there is income due, which
means there is a monetary impact on the manufacturer and the
wholesaler alike — this is a credit transaction. ( )