What is a Cash Transaction?
A cash transaction is a payment method where money is exchanged for goods or services immediately during purchase. This can be through coins, notes, or other accepted forms of money. These transactions are typical and convenient, prevent unnecessary expenditure and debt, and offer instant income for sellers. However, they can be challenging if there is insufficient cash for a purchase.
Cash Transaction Explained
A cash transaction occurs when cash is paid straight away to buy goods or services. Buying or selling stocks is a cash transaction as it happens at the current market price. The money and shares are exchanged instantly once the deal is agreed upon, even if settlement takes a few days. But, futures transactions or credit card payments are not cash transactions because the money and the item are not exchanged immediately.
Cash Transaction Example
For instance, a person pays for coffee using a UPI app on a smartphone. The app transfers the money directly from the person's bank to the coffee shop's account. This is a cash transaction because there is no delay in payment or delivery of the product. If the person used a credit card, the payment would only be made when settling the credit card bill.