Question

Choose the best statement regarding the recording of transactions? 1. a transaction is a record even if no exchange has taken place 2. transaction is an exchange of value between two parties 3. recording transactions is a fruitless exercise 4. recording transactions automatically means the business will succeed.

Answer 1

Solution:

Option 1

Exchange of Goods for cash or other valuable things can be considered as a transection. For Example Placing a order for purchase of goods cannot be considered as a transection as there is no exchange of values. So, this statement is not correct.

Option 2

Transaction is an exchange of value between two parties. A transection can be between two business entities during the course of business or between two individuals for their mutual benefits. So, the above statement is correct.

Option 3

Recording the transactions helps an entity to ensure compliance with the relevent laws and regulations, avoid panalties and interest. It can be used as a documentary evidence during audit, help in saving taxes and can be used for future reference and timely audits. Hence, recording transactions is a fruitful exercise and the given statement is not correct.

Option 4

Recording the transection is the first step of the accounting cycle which means putting your financial information into a usable form. merely recording the transections does not implies that the business will succeed. sucess of business depends on a number of factors such as after sale services, market conditions, competitive advantage etc. Hence, the given statement is not correct.

So, the  best statement regarding the recording of transactions is Option 2 transaction is an exchange of value between two parties.