Cash transaction

1. A transaction in which an exchange of cash takes place is known as Cash transaction.
2. In such a transaction, one account is definitely related to Cash /Bank.
3. In such transaction specifies that it is for cash or there is no mention about cash or name of person.
4. Cash transaction is recorded in Cash book or Petty cash book.
5. Cash account or Cash book is prepared to keep record of cash transactions and cash balance can be known at the end of the given period.
6. No debt is created due to cash transaction.

Credit transaction

1. A transaction in which no exchange of cash takes place is known as Credit transaction.
2. In such a transaction, one account affected Is of a person.
3. In such transaction, there is only name of person without specifying that it is for cash.
4. Credit transactions are recorded in Purchase book, Sales book, Goods-returns book or in Journal proper.
5. Debtors and Creditors accounts are prepared from credit transactions and amount payable to creditors as well as total amount receivable from debtors can be known from these accounts.
6. A debt is created due to credit transaction.