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Identify the statement that represents an external transaction.
Answer to Problem 1SSQ
c. payment of utility bill.
Explanation of Solution
External Transaction:
A company conducts its business transaction with another company or with other individuals and this is referred to as external transaction. Some of the examples of an external transaction are selling goods to customers, purchasing goods from suppliers, bills from suppliers, paying salary to employees, signing contract.
Justification for correct answer:
Option c:
When a company pays its utility bill it is considered to be an external transaction, because the company will pay its bills (liability) to the person outside the company like another company or individual. Hence, Option B is the correct answer.
Justification for incorrect answer:
Option a:
Lapse of insurance due to passage of time is not considered as an external transaction because in an external transaction there should be transaction between the company and another company or individual but in non-payment of insurance amount there is no external transaction taking place, as the amount is not being paid.
Option b:
When employees use office supplies for over time it is considered to be an internal transaction because the office supplies used by the employees are property of an organization which they are employed.
Option d:
When salaries earned by employees are being accrued, they are not considered as external transaction because the accrual of employees’ salaries comes under the category internal transaction.
Therefore, from the above explanation, option c is the correct answer and the other options of a, b and d are incorrect.
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Chapter 2 Solutions
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