Intermediate Accounting

A transaction has market value

A transaction has market value if it affects or changes the future cash flows of a company. In accounting, transactions affect future cash flows if there is a significant change in any of the following areas: First, when economic risk increases and cash flow does not come in. The second scenario is when the expected cash timing changes as a result of the transaction. For example, if you receive a large amount of money in the future, you can agree to receive the money later. A final scenario in which transactions affect expected cash flows is when the amount of the transaction is affected. You may, for instance, agree to receive a small amount of cash for equipment now rather than waiting for a larger sum in the future (Commercial substance, 2016).

The other aspect of accounting

The other aspect of accounting is when a transaction or exchange has no commercial value. In this case, the transaction does not impact future cash flow. In other terms, there is no profit of loss to be made from such a transaction. A case in point in this situation is when a business decides to change from one provider of telephone services to another. In such a case, there is no value or loss realized as both the provider and business will make money.

When exchanges are made by the firm

When exchanges are made by the firm or business people such transaction may have or lack commercial value. Accountants may realize a profit or loss in the transaction that has commercial value. However, for a deal that lacks commercial value, there is gain or loss to be made.

Work Cited

Commercial substance. (2016). Accounting tool. Retrieved Jul. 3, 2017, from https://www.accountingtools.com/articles/what-is-commercial-substance.html