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Differentiate between transaction and exchange
The interdependent nature of the world allows people to obtain goods and services from producers to consumers. Some of them include transactions and exchanges. Though both sound similar and interchangeable, they differ in various aspects.
Transactions
In this mode, provision of goods and services exchanged for money is done between firms. This results in movement of value from one to another. In business context, recording these transactions helps in business performance and planning.
Business transactions can occur in both cash and credit transactions. These transactions have a direct impact on the company’s financial position and financial records.
Exchange
In this mode, goods and services will trade off between parties. For exchange to take place, both parties will come to mutual interest in their goods and services.
Example − Barter system is the popular type of exchange. This term is also used in financial markets.
Differences
The major differences between a transaction and an exchange are as follows −
| Sr.No | Transaction | Exchange |
|---|---|---|
| 1 | Exchange of goods/service for an amount between two or more parties/companies/firms. | Goods/services are traded off between parties. |
| 2 | Generally, the term transaction is used in Ownership transfer from one (buyer) to another (seller). | Generally, the term Exchange is used in currency exchange rates/barter trade. |
| 3 | Used money as medium. | Money is not a medium of trade. |
| 4 | Involves two or more than two parties. | Only two parties are involved in exchange |
| 5 | Recorded in books of accounting. | In exchange, transactions are not recorded. |
Summary
The difference between exchange and transaction revolves around monetary involvement and context which they use respectively. Transaction is used when goods and services are exchanged for money and trade-off is used when goods and services are traded instead of money. Most common example for trade-off is the barter system.
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