Recognizing Evidence of Internal Transactions and the Differences with External Transactions

In carrying out various operational activities, a business will certainly carry out various transactions. Well, based on the parties involved, the transactions that occur in the company are divided into two, namely internal transactions and external transactions. It also requires reliable evidence, both internal and external transaction evidence.

Then, what is an internal transaction? What are the proofs of internal transactions? What makes it different from external transactions? Relax, we will answer it through the article about internal transactions below.


1 What is an Internal Transaction?
2 Examples of Internal Transactions
3 Proof of Internal Transactions
4 What is an External Transaction?
5 Examples of External Transactions
6 Types of Proof of External Transactions
6.1 1. Passport
6.2 2. Receipt
6.3 3. Sales Invoice or Invoice
6.4 4. Check
7 Cover

What is an Internal Transaction?

Internal transactions are financial transactions that do not involve third parties outside the organization or company. Usually, these internal transactions only occur between company leaders and employees, or between each division within the company.

You need to know that although it greatly affects the status and financial statements of a company, transactions that occur within the company are not only about financial transactions but there are also transactions in the form of exchanging goods.

Example of Internal Transaction

Simple examples of internal transactions that occur in a company are recording the depreciation of fixed assets, book-entry from raw materials to semi-finished goods or semi-finished goods to manufacturing companies, to an amortization of prepaid expenses.

Proof of Internal Transactions

Recording or documentation is a very important aspect in making company financial statements. For this reason, even though transaction activities occur between internal parties within a company, evidence of such internal transactions must still exist and be properly recorded.

Usually, evidence of internal transactions will be in the form of small notes or internal memos containing orders from superiors or requests from colleagues between departments.

So, in order to ensure that the evidence of the internal transaction is reliable evidence, a signature is required as valid evidence of the document.

What is an External Transaction?

It is different with internal transactions, external transactions are transactions that occur between companies and other parties from outside the company or third parties. External transactions may also occur between the company and more than one-third party.

The third party is an individual or company entity that has collaborated and has certain interests with the company. These third parties include vendors, suppliers, distributors, business partners, resellers, and agents.

External transactions that occur between the company and these third parties are also usually in the form of an exchange of resources owned by both and involve the company’s finances.

Example of External Transaction

An example of the easiest and most frequently found external transaction activity is buying and selling transactions. Let’s say that company X wants to buy a product from company Y or vice versa.

Another example is, there is company A who wants to pay debts to creditors, or company A pays sales commissions to distributor agent D.

Types of Proof of External Transactions

Because in this external transaction activity involves a third party, there are many types of evidence of this transaction. But, the most widely used are as follows:

1. Passport

A travel document is a document in which it indicates that the goods ordered by the buyer have left the seller’s warehouse and are on their way to the buyer’s warehouse or shop.

Usually, this travel document will be signed by the driver, warehouse admin, and the buyer if the goods ordered have arrived at their destination.

2. Receipt

A receipt is a document that indicates that the goods have been received by the company if the company acts as a buyer.

In addition, the receipt can also function as a document received by the supplier during the billing process and as evidence that the invoice and its various attachments have been sent in full to the financial department or the company’s finance division.

3. Invoice or Sales Invoice

A sales invoice or invoice is a document in which there is information about the types of goods that have been sold and also the total nominal price to be paid by the buyer.

This document will usually be sent to the buyer when the payment billing process occurs accompanied by various other attachments, such as tax invoices, travel documents, and goods requisition forms.

4. Check

Check is a document that contains the nominal amount of payment in accordance with the sales invoice that has been sent by the seller. Generally, a check will be issued by the bank’s financial institution as proof of the transaction, then it will be deposited by the finance department.

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