Financial transactions and reports involve monitoring and analysis of the flow of cash through your company. These could be transactions that what makes a good board of directors take place internally, such as purchases and payroll reports, as well as externally like rental and sales of assets; or credit-related transactions (e.g., loans or revolving credits, cash advances). Financial transaction analysis is critical to ensuring that your accounting records are accurate and reliable. This requires clear definitions, procedures and policies in addition to consistent, regular updating.
Internal transactions are those that take place within a business that are part of a company, for example, purchases, sales and rent of office space. These transactions are also referred to as non-cash due to the fact that they don’t involve the exchange of goods or services in exchange for cash. They can include donations and social responsibility spending, as well as other expenses such as travel and PCard charges.
Cash and non-cash transactions are recorded in the financial system of record, which can range from a simple accounting software to a sophisticated Enterprise Resource Planning (ERP) system. A solid financial statement is dependent on procedures and policies that ensure that only transactions that can be independently verified are recorded in the system. These include documentation from the source like sales orders receipts, purchase invoices bank statements, cancelled checks, promissory note and appraisal reports.
To confirm the legitimacy of a transaction, it is necessary to first identify the accounts involved and determine where it will be deducted and credited. For example, suppose your company earns $5,000 in revenues from consulting services. To record the sale, you must identify the income account as well as the accounts receivable account; verify that both are growing; and apply the rules of debiting and crediting. To complete the process, you need to then enter the transaction into your journal entry.