Deciding whether a transaction involves cash or credit can often confuse students. The following pointers will help to alleviate any confusion. (i) All transactions in which the word “paid” is mentioned are deemed cash transactions (e.g., rent paid, salaries paid, and so forth) (ii) All transactions in which the words “cash or cheque” are used are deemed cash transactions (e.g., cash received for $1,000 or cheque received for $10,000) (iii) If cash and a person’s name are mentioned then this will be deemed a cash transaction (e.g., goods purchased from Amir for cash $3,000) (iv) Occasionally, nothing is mentioned in a transaction: in such cases, it is a cash transaction (e.g., goods sold for $4,000) (i) All transactions in which the words “on credit or account” are mentioned are deemed credit transactions (e.g., bought goods on credit/account for $3,000) (ii) If a transaction involves the name of a person or firm without mentioning the word “cash,” it will be a credit transaction (e.g., sold goods to John for $5,000) State whether the following transactions are cash or credit: (a) Mr. David started a business with $200,000 cash (b) He purchased goods for $1,000 (c) He purchased goods from John for $2,000 (d) He purchased goods from Harry for $5,000 cash (e) He sold goods on credit to Michael for $2,000 (f) He sold goods for $5,000 (g) He sold goods to Rochelle for $2,500 cash (h) He paid office rent of $3,000 (i) Received commission of $500 (j) Paid insurance cost of $2,000 (a) Cash transaction (b) Credit transaction (c) Credit transaction (d) Cash transaction (e) Cash transaction (f) Cash transaction (g) Cash transaction (h) Cash transaction (i) Cash transaction (j) Cash transactionFeatures of Cash Transaction
Features of Credit Transaction
Examples
Solutions
Rules for Determining a Cash or Credit Transaction FAQs
A key rule for determining a cash or credit transaction is whether the customer has enough money to cover the cost of an item or service in hand. If so, then it is considered a cash transaction; if not, then it is most likely a credit transaction.
Customers should check with their merchant to see if they meet their minimum requirements for qualifying for credit purchases, such as having good credit history and meeting income thresholds.
Yes, there may be fees associated with using a credit card, such as interest or annual fees. Customers should check with their merchant to confirm their rate and any applicable fees before making a purchase.
Yes, merchants may have limitations on how much cash can be used for a single transaction. Generally speaking, customers should always check with the merchant for specific limits before making a purchase.
Using cash has several advantages, including avoiding potential interest charges or late fees associated with credit cards, not having to worry about spending more than what is immediately available in your budget, and keeping better track of spending. Additionally, cash transactions are usually completed faster than credit transactions.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.
