Explain the Distinction Between a Real Transaction and a Financial

question 22

Essay

Explain the distinction between a real transaction and a financial transaction (giving examples of each)and explain why for most real transactions,there is a financial transaction that mirrors it.

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Definitions:

Premium

An additional amount paid over the normal cost, often associated with insurance or bonds.

Discount

In finance, this is the reduction from the face value of a note, bond, or other financial instrument; in commerce, it refers to a reduction from the regular price.

Journal Entry

A documentation of a financial transaction in which the total debits equal the total credits and is entered into the accounting records.

Times Interest Earned Ratio

A financial ratio that compares a company's operating income to its interest expenses, indicating how well it can cover interest payments with earnings before interest and taxes.