The Meaning of Barter: Definition, History, Terms, Strengths and Weaknesses of Bartering

In ancient times, long before the world recognized the medium of exchange as it is today, people all over the world traded goods to get what they wanted. This activity is known as bartering. So, what does barter really mean?

Well, on this occasion we will discuss in-depth the meaning of barter, and its application in today’s era, complete with the history, terms, advantages and disadvantages of using the barter system.


1 The Meaning of Barter Is
2 History of the Bartering System
3 Conditions for Bartering
4 Accounting Systems in Barter Transactions
5 Advantages of the Barter System
5.1 Increase Cash Flow
5.2 Avoiding Waste
6 Advantages of the Barter System
6.1 Unequal Value
7 Conclusion

The meaning of barter is

Currently, paper currency is the only legal tender. This paper currency is issued by the central bank as a legal tender that can be used to assess the price of goods. So, if you want an item, then you can use the amount that suits the price of the item.

But before the world community recognized paper currency as a legal tender, barter was a very common activity. Actually, this barter system was already used in the period 6000 BC by the people of Mesopotamia.

At that time, the community realized that their production was not able to cover all their needs. For this reason, various goods used in this bartering activity are spices, food, and weapons.

Based on the KBBI, the meaning of barter is a trading activity by exchanging goods. In these activities, there is no definite value in an item. So, this creates a problem.

The bartering activity should be agreed upon between the parties so that the goods have various values ​​in public transactions.

Based on this, barter has several main characteristics. First, the party who wants to barter must-have goods to be exchanged.

Second, parties who want to exchange goods must have a sense of mutual need for goods and this activity must be carried out at the same time. Third, the value of the goods exchanged must be equal.

In the process of its activities, it is very difficult to find those who want to exchange their belongings with other people because of its principle of benefit in it. For example, if you need a sack of rice and you only have one goat, it is highly unlikely that you will give your goat for a sack of rice.

To overcome this, the solution is to cut your goat into smaller pieces to be exchanged for rice. But the next problem arises, how many pieces of goat do you have to give to get rice? So the answer is it depends on mutual agreement.

In the implementation process, there are three types of barter that are very often carried out. The first is direct barter, which is the activity of exchanging goods directly. The second is barter transfer, which is a condition when the recipient of the barter transfers the goods resulting from his barter to another party who is better able to take advantage of the value of the goods.

The three goods take over, namely barter activities carried out because of cooperation to be able to exchange goods or services.

So, basically bartering activities will actually make each human being more selective in choosing the goods they need so that the quality of an item can be maintained properly. The barter system will also be able to reduce the social gap that occurs between the rich and the poor because each individual will need each other’s goods.

History of the Barter System

As previously explained, bartering has been used since 6000 BC by the Mesopotamians. This activity was later adopted by the Phoenicians. They exchange their commodities with other communities across the ocean.

This system then further developed in Babylon. At that time, every item could be used as standardization of berter, such as human skulls. In addition, one of the most famous items used at that time was salt.

Then, this barter system has common problems, such as the difficulty of finding people who need each other at the same time. To overcome this problem, humans finally made an object that was considered the most valuable to be used as a medium of exchange, namely gold coins, silver coins, and copper coins.

Conditions for Bartering

Although the main nature of barter is exchanging and based on an agreement, there are still conditions that must be met by barter actors. This is done in order to maximize fairness in conducting transactions. The following are the conditions for bartering:

1. Every individual or group who wants to do barter must be able to prove the existence of the goods in real terms.
2. Every individual or group who wants to barter must need the goods to be exchanged at the same time. So that there will be no element of coercion and also delays in transactions that are outside the agreement.
3. Every item to be exchanged in the barter system must have an equivalent or close value. This can be seen in terms of quantity and quality of goods, for this reason, discussions and agreements are needed between the two parties.

Accounting System in Barter Transactions

The barter system is one of the big issues in the world of accounting. Why? Because the barter system does not use currency as a means of payment, it will be difficult to assess a price and also quantify an item. So, in the financial statements, the problem that will arise is whether the income should be recognized or not.

Under the control of IFRS, each company must recognize revenue from its barter transaction processing and must report it in the profit or loss column based on the fair value of income from non-bartering activities as with other unrelated parties. This means that you must value the barter transaction at its cash value.

On the other hand, under US GAAP control, companies must recognize barter transactions in the income statement column at fair value only if the company has a history of making or receiving cash payments for the same goods or services.

Thus, the company can use its historical experience to assess the fair price of the item. If not, then revenue must be included in the carrying amount of the asset given up.

Advantages of the Barter System

1. Increase Cash Flow

As previously noted, barter does not use any money in the payment system. It is a powerful alternative in the modern economy. So, you can save your money for other needs that cannot be done with the barter system, such as utility payments or loan interest.

For this reason, the barter system is now becoming increasingly important when the value of money drops sharply due to the impact of inflation.

2. Avoid Waste

The barter system is carried out on the principle of reciprocity and involves the exchange of goods or services that are currently needed. So you just have to find the other party and agree on a delivery of the goods.

Bartering can also reduce waste because what you have exchanged is only what you really need. On the other hand, if you use money, you may be buying something that you don’t really need.

3. Fostering Interaction and Building Networks

A barter system is one solution to create a sense of trust and a deeper personal relationship between every human being. Relationships like this will be very useful for the future.

Advantages of the Barter System

1. Unequal Value

By using a barter system, you may find it difficult to quantify a product. For this reason, the solution is to use cash as a means of payment, where the money can make it easier to manage the exchange of goods and services. So, you only have to submit money worth the price of the goods provided.

2. No Cash Receipt

This happens because you do not use money as a means of payment, and the goods exchanged do not have a fixed measure of value.

3. Cannot Share Certain Items

Some items can only be exchanged in full and cannot be broken down into smaller pieces to meet exchange requirements.

4. It’s Hard To Save Wealth

By using a barter system, you will be forced to be able to store your wealth in the form of goods. In addition to requiring more space, your items will also be more susceptible to damage or easier to steal.

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