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Definition: Cash Transactions
Cash transactions are defined as an exchange which is immediate in the form of cash. In other words, there is transfer of cash (coins, notes or cheque) from one owner to another in return for some goods or services immediately.
The seller has to sell the goods or services at the present market rate and the buyer will buy the same at the present price. There is no future contract or commitment in a cash transaction. Credit contracts are not part of cash transactions as the payment is received in such contracts at a later point in time even though the time is agreed upon during the services or goods provided.
Example: When we go out to buy groceries, we pay for the goods we buy immediately via cash or debit card. This is a cash transaction. The goods were purchased at the present market rate and the payment was done immediately (in the present time without postponing it in the future).
In foreign exchange market, the term ‘cash transaction’ is usually not used. Instead they use ‘spot transaction’ which means the same thing.
While buying property, partial payment is done during the contract finalizing and the remainder is done after acquisition of the property. This is not a cash transaction. In a cash transaction, there is no credit left and all the liability is payed off at the present time in the form of cash.
Cash transaction can be of two types:
a. Cash Payments: Cash payments are when we pay money and buy some goods or services. For example, shopping of grocery or apparels. In this case, cash is decreased (credited) and purchases are increased.
b. Cash Receipts: Cash receipts are when we receive cash in exchange for goods or services provided by us. For example, if we are manufacturing electronics goods like laptops, when we sell one laptop and receive equivalent cash as per the present market rate, cash receipts is made. Here cash is increased (debited) and goods or services are decreased.