Money In, Money Out — Transactions

It was Meera's second day at the office. She arrived early, made tea for everyone, and sat at her desk with her notebook open. Yesterday she had learned WHY accounting matters. Today, Sharma Sir had promised to teach her the first real concept. "Today," he said, putting his steel tiffin on the desk, "we learn about transactions. This is the atom of accounting. Everything is built from this."

What is a Transaction?

Sharma Sir picked up two things from his desk: a pen and a ten-rupee note.

"Meera, I'll give you this pen. You give me ten rupees."

Meera laughed but played along. She took the pen. He took the ten-rupee note.

"What just happened?" he asked.

"You sold me a pen for ten rupees," Meera said.

"Correct. Something was exchanged. I gave you a pen. You gave me money. This exchange — this is a transaction."

He wrote on the whiteboard:

Transaction = Any exchange that involves money or something of money value.

"Every time money changes hands, or goods change hands, or a promise to pay is made — that is a transaction."

"Let me give you more examples from everyday life."

"So a transaction is not just buying and selling?" Meera asked.

"No! Paying rent is a transaction. Receiving a loan is a transaction. Paying salary to a helper is a transaction. Even putting your own money into your business — that is a transaction. Any event that changes the money picture of a business is a transaction."

Cash Transactions vs Credit Transactions

"Now," Sharma Sir said, "transactions come in two main types. This is important. Pay close attention."

Cash Transaction — Money Right Now

"When you buy chai and pay ₹15 immediately — the money changes hands on the spot. This is a cash transaction."

Cash Transaction = The payment happens immediately, at the time of the exchange.

"Note: 'Cash' here doesn't only mean paper notes and coins. If you pay by UPI, debit card, or bank transfer at the time of buying — it is still a cash transaction. The point is: the payment happened right away."

Credit Transaction — Money Later

"But sometimes the payment does NOT happen immediately. Rawat Aunty buys rice from a wholesaler. The rice is delivered today. But she pays the wholesaler next week. This is a credit transaction."

Credit Transaction = The goods or services are exchanged now, but the payment happens later. In Hindi, we call this udhar (उधार).

"Meera, do people in your village buy things on udhar?"

"All the time!" Meera said. "At our local shop, people say 'likh lo, mahine mein dunga.' The shopkeeper writes it in his bahi khata."

"Exactly. That bahi khata entry? That's recording a credit transaction."

Here is a comparison:

Money In vs Money Out

Sharma Sir drew two arrows on the whiteboard — one pointing inward, one pointing outward.

"Every transaction does one of two things from the business's point of view:"

Money In (Inflow)

"Money comes INTO the business. Examples:"

• A customer pays you for goods
• A customer repays an old udhar
• You receive a loan from a bank
• You put your own savings into the business

Money Out (Outflow)

"Money goes OUT of the business. Examples:"

• You buy stock from a supplier
• You pay rent
• You pay electricity bill
• You pay salary to your helper
• You repay a loan installment

"Some transactions involve money coming in. Some involve money going out. Your job as an accountant is to record BOTH — clearly, accurately, and on time."

Meera Visits Rawat Aunty's Shop

In the afternoon, Sharma Sir sent Meera and Negi Bhaiya to Rawat Aunty's shop in Almora. The bus ride from Haldwani took about three hours through winding mountain roads.

Rawat General Store was a small but busy kirana shop on the main road. Shelves were stacked with rice, dal, oil, soap, biscuits, spices, and detergent. Rawat Aunty's son helped her at the counter.

"Meera, I want you to sit here for two hours," Negi Bhaiya said. "Watch every transaction that happens. Write it down in your notebook. For each one, note down:"

1. What happened (description)
2. How much money (amount)
3. Cash or credit?
4. Money in or money out?

"I'm going to check on Bisht Ji's warehouse nearby. I'll be back by 5."

Meera sat on a stool near the counter, notebook in hand, and watched.

Two Hours at Rawat General Store

The shop was busier than Meera expected. In just two hours, she observed and recorded the following:

Transaction 1: A woman bought 2 kg rice (₹80), 1 kg dal (₹120), and a soap bar (₹35). She paid ₹235 in cash.

Transaction 2: Rawat Aunty's son unloaded a delivery from a supplier — 10 packets of biscuits, 5 kg turmeric, and 20 bars of soap. The delivery man had a bill for ₹4,200. Rawat Aunty said, "I'll pay on Saturday." The delivery man noted it and left.

Transaction 3: An old man came in and said, "Rawat ji, last month I took oil and dal on udhar. Here's ₹650." Rawat Aunty took the money and tried to find his name in her notebook.

Transaction 4: Rawat Aunty's son went to the post office next door and paid the electricity bill — ₹1,100.

Transaction 5: A school boy came in and bought a packet of biscuits (₹20) and a cold drink (₹30). Paid ₹50 in cash.

Transaction 6: Rawat Aunty gave a bundle of goods to a woman who said, "Didi, likho na, pension aayegi toh de dungi." The goods were worth ₹380. This was udhar.

Transaction 7: A man bought 5 kg flour (₹200) and paid through UPI. The phone beeped with "₹200 received."

Transaction 8: Rawat Aunty paid ₹200 to a boy who helped carry heavy sacks in the morning — his daily wage.

Transaction 9: A regular customer bought a large order — 10 kg rice, 5 kg sugar, 2 liters oil, and other items totaling ₹1,850. He paid ₹1,000 in cash and said, "Baaki next week." So ₹850 was on udhar.

Transaction 10: Rawat Aunty counted some cash from the register and put ₹5,000 in an envelope. "This is for the landlord," she told her son. "Give it to him tomorrow." She set it aside as rent.

Transaction 11: A woman returned a packet of dal saying it had insects. Rawat Aunty took it back and returned ₹120 in cash.

Transaction 12: Near closing time, Rawat Aunty bought tea and samosas from the stall next door for herself and her son — ₹60.

Meera Organizes Her Notes

On the bus ride back to Haldwani, Negi Bhaiya looked at Meera's notebook. "Good observations. Now let's organize them. Put everything in a table."

Meera drew a table and filled it in carefully:

Negi Bhaiya nodded approvingly. "This is much better than Rawat Aunty's torn notebook, isn't it?"

"So much better!" Meera said. "I can actually see what happened today."

Important Observations

Back at the office the next morning, Sharma Sir reviewed Meera's table. He pointed out several important things.

1. UPI is Still a Cash Transaction

"See transaction 7? The customer paid by UPI. You correctly marked it as 'Cash.' Many students get confused by this. Remember: cash transaction means payment is immediate. It doesn't matter if the payment is in notes, coins, UPI, bank transfer, or debit card. If the money moves right away, it's cash."

2. Part Cash, Part Credit is Common

"Transaction 9 is very realistic. A customer pays some amount now and some later. This happens all the time in Indian businesses. You need to record both parts clearly — the cash portion and the credit portion."

3. Returns are Transactions Too

"Transaction 11 — the customer returned bad dal and got a refund. This is called a sales return. It is a real transaction. Money went out. You must record it."

4. The Owner's Personal Expenses

"Transaction 12 — Rawat Aunty bought tea for herself. This is tricky. Is it a business expense or a personal expense? In proper accounting, we need to separate business expenses from personal expenses. We'll learn more about this later."

5. Setting Aside Money is Not Yet a Transaction

"Transaction 10 — she put money in an envelope for rent. Strictly speaking, the transaction happens when the money is actually PAID to the landlord. Putting it in an envelope is just preparation. But for simplicity at this stage, we recorded it because the money is committed."

Types of Transactions in a Small Business

Sharma Sir drew a chart on the whiteboard summarizing the different types of transactions a small shop like Rawat Aunty's deals with:

1. Sales Transactions

Selling goods to customers.

• Cash sales (customer pays now)
• Credit sales (customer pays later — udhar)

2. Purchase Transactions

Buying goods from suppliers to sell in the shop.

• Cash purchases (pay the supplier now)
• Credit purchases (pay the supplier later)

3. Expense Transactions

Spending money to run the business (not buying goods for resale).

• Rent
• Electricity
• Wages/salary
• Repairs
• Transport

4. Receipt Transactions

Receiving money that was owed to you.

• Customer repays udhar
• Receiving a refund from a supplier

5. Payment Transactions

Paying money that you owe.

• Paying a supplier for goods bought on credit
• Repaying a loan installment

6. Return Transactions

Goods coming back.

• Sales return (customer returns goods to you)
• Purchase return (you return goods to supplier)

7. Owner-Related Transactions

• Owner puts personal money into business (Capital)
• Owner takes business money for personal use (Drawings)

"Don't try to memorize all of these right now," Sharma Sir said. "Over the next weeks, you'll see each type many times. The important thing today is: you now know what a transaction is, the difference between cash and credit, and the difference between money in and money out."

Why Every Transaction Must Be Recorded

"Meera, one final thought," Sharma Sir said. "You watched Rawat Aunty's shop for just two hours and counted twelve transactions. In a full day, there might be fifty or sixty. In a month? Over a thousand."

"If you miss even one, the numbers won't add up at the end. Imagine losing track of just one ₹4,200 credit purchase. At the end of the month, your records will show ₹4,200 more than you actually have. The supplier will come asking for money, and you'll be confused."

"That's why accountants are careful people. Every. Single. Transaction. Must. Be. Recorded."

He tapped the table for emphasis.

"You'll learn HOW to record them properly in the coming chapters. For now, the skill you are building is: observation. Learning to notice every transaction as it happens. That's what you practiced today at Rawat Aunty's shop."

Quick Recap — Chapter 2

What is a transaction? — Any exchange that involves money or something of money value.

Two main types:

• Cash transaction — payment happens immediately (includes UPI, card, bank transfer)
• Credit transaction — goods/services now, payment later (udhar)

Two directions:

• Money In — money comes into the business (sales, repayments, loans received)
• Money Out — money goes out of the business (purchases, rent, salaries, bills)

Seven categories of transactions: Sales, Purchases, Expenses, Receipts, Payments, Returns, Owner-related.

Golden rule: Every single transaction must be recorded. Miss one, and your numbers won't add up.

Practice Exercise — Try This Yourself

Exercise 1: Visit a small shop near your home (kirana, stationery, chai stall — anything). Sit there for 30 minutes to one hour. Write down every transaction you observe in this format:

Try to record at least 8 transactions.

Exercise 2: For each transaction below, say whether it is Cash or Credit, and Money In or Money Out (from the shopkeeper's point of view):

Exercise 3: Think about your own household for one day. List every transaction that happens. Morning chai (₹ spent on milk, sugar, gas), school fees, bus fare, vegetable shopping, phone recharge — everything. You'll be surprised how many transactions happen in a single day!

Fun Fact — The Bahi Khata Tradition

India has one of the oldest accounting traditions in the world. The bahi khata (बही खाता) system has been used by Indian traders for centuries. Marwari businessmen, Gujarati traders, and shopkeepers across the country have kept their bahis in handwritten books with red cloth covers.

On Diwali, many Indian businesses start a new bahi khata — a fresh book for the new financial year. This is why Diwali is also called the festival of new beginnings for businesses. The old book is closed, and a new one is opened with a prayer to Goddess Lakshmi.

And in the hills of Uttarakhand, shopkeepers have kept their own style of udhar records for generations — often with just a name and an amount in a small notebook. What you are learning now is the organized, professional version of what your grandparents already knew by instinct.

The skill is in your blood. You are just learning to make it professional.

Next chapter, Meera learns the most powerful idea in all of accounting — the double-entry system. Every transaction has TWO sides. This changes everything.