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Topic 2

Uploaded by

thabiti mohamedi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Course Title: Basics Of Finance And Procurement Management

Course Code: GST 06103

Topic 2: Classification Of Financial Transactions In Media Practices

What is financial transaction?


Business involves the buying and selling of goods or services. In other words, business
is about transactions. But what is a transaction? When two parties complete an
agreement to exchange an item, service, or financial asset for money, they have
engaged in a transaction. Since this transaction definition entails a monetary exchange
for a product or service, it is important to introduce the concept of a financial
transaction.
A financial transaction involves an activity that changes the value of the assets,
liabilities, or owner's equity in a business. Almost everyone is involved in a financial
transaction at some point or another. Examples of typical financial transactions
include;
 Purchases at the candy store
 Buying a new house
 Paying monthly bills
For a financial transaction to work there must be two willing parties, a seller and a
buyer. The transaction must involve money in one way or another. Activities that
change the value of liabilities, assets, and owner's equity are important in accounting.
Financial transactions are chronologically documented in accounting journals.
Classifications:
Classifying financial transactions in media practices typically follows the general
accounting principles applied in business transactions, but tailored to the unique
nature of the media industry.

LECTURE SERIES, BY MR. THABITI Page 1


Here are standard guidelines for classifying financial transactions in media
practices:
1. Revenue Transactions: Transactions related to the inflow of economic
benefits from sales of goods or services.

a. Advertising Revenue: Generated from selling ad space (e.g., TV, radio, print,
digital platforms).
b. Subscription Revenue: Earned from consumer subscriptions to media
content (e.g., online subscriptions, TV channels).
c. Syndication Revenue: Income from selling content rights to other media
outlets (e.g., TV shows, movies).
d. Licensing Revenue: Earned from licensing content to third parties.
e. Content Sales: Income from direct sales of media content (e.g., films, music,
publications).

2. Expense Transactions: Transactions that represent outflows or


consumption of economic benefits incurred in generating revenue

a) Production Costs: Costs of creating content, including salaries, equipment,


and facilities.
b) Marketing and Distribution: Expenses incurred to promote and distribute
media content.
c) Administrative Expenses: General costs like office rent, utilities, and other
overheads.
d) Content Acquisition Costs: Payment for purchasing content rights or
licensing.
e) Amortization of Content: Allocation of the cost of produced or acquired
content over its useful life.

3. Capital Expenditures: In media, these transactions involve significant


investments in long-term assets required for production and distribution

LECTURE SERIES, BY MR. THABITI Page 2


a) Purchase of Studio Equipment: High quality cameras, editing software, or
studio infrastructure.
b) Investments in infrastructure: studios, broadcasting equipment.
c) Acquisition of Content Rights: Purchasing the rights to distribute films, TV
shows, or music is a major capital transaction.
d) Investment in Intellectual Property (IP): Acquiring the rights to a book or
story for adaptation into a film or TV series

4. Receivables and Payables


a. Accounts Receivable: Income from advertisers or other parties that has
been earned but not yet received.
b. Accounts Payable: Outstanding obligations for services or content
purchased but not yet paid for.

5. Royalties and Licensing Fees


a. Payments to content creators for using their work (royalties).
b. Fees received from others for licensing media content.

6. Investments and Financing Activities


a. Investments in other media companies or joint ventures.

7. Cash Transactions
b. Cash Sales of Media Content: Direct purchase of films, music, or other
digital content by consumers.
c. Payments for Freelancers and Contractors: Cash payments for short-term
work, such as hiring a freelance writer or videographer.

8. Non-Cash Transactions
a. Content Swaps between Media Companies: Two networks or platforms
exchanging rights to content without involving direct payments

LECTURE SERIES, BY MR. THABITI Page 3


b. Barter Deals for Advertising: Media companies may trade advertising slots
for services or goods, rather than paying in cash.

Components Of Transactions:
1. Parties Involved: The individuals or entities engaging in the transaction
(e.g., buyer and seller, borrower and lender).
2. Asset or Item: The financial instrument or commodity being exchanged
(e.g., money, goods, services, stocks, bonds).
3. Transaction Amount: The value or price of the asset being transferred,
which could be in monetary terms or expressed in other financial metrics.
4. Date and Time: The point when the transaction occurs or is recorded,
crucial for accounting and compliance purposes.
5. Terms and Conditions: Agreements between the parties regarding
payment schedules, interest rates, delivery conditions, or other contractual
obligations.
6. Payment Method: The way in which the financial exchange is conducted
(e.g., cash, credit card, wire transfer, crypto currency).
7. Documentation: The official records or receipts that verify the transaction
details for auditing, legal, or tax purposes.

Merits Of Classifying Financial Transactions


The classification of financial transactions is essential for several reasons,
particularly in accounting, financial reporting, and decision making.
1) Accurate Financial Reporting: Classifying transactions ensures that they are
recorded in the correct accounts (e.g., revenue, expenses, assets,
liabilities), which is crucial for generating accurate financial statements. This
helps stakeholders understand the financial health of an organization.
2) Legal and Regulatory Compliance: Different types of transactions may have
specific reporting requirements set by regulatory authorities. Proper

LECTURE SERIES, BY MR. THABITI Page 4


classification ensures compliance with tax laws, accounting standards (such
as GAAP or IFRS), and other regulations.
3) Effective Decision Making: When transactions are correctly classified, it
provides management with a clear understanding of income, expenses, and
cash flow, enabling better business decisions, budgeting, and forecasting.
4) Efficient Tax Reporting: Correctly classifying transactions ensures that
deductible expenses are captured and reported, which helps businesses
minimize tax liabilities and avoid penalties.
5) Tracking Business Performance: Classification allows for the analysis of
financial data over time, enabling businesses to track profitability, identify
trends, and measure performance across different departments or projects.
6) Facilitates Auditing: Proper classification simplifies the audit process.
External auditors can easily verify the accuracy of financial records and
ensure that the financial statements give a true and fair view of the
company’s financial position.
7) Internal Controls and Fraud Prevention: By consistently classifying
transactions, it is easier to detect anomalies or irregularities in financial
records, helping to prevent fraud and errors.
8) Resource Allocation: Businesses can identify areas where funds are being
spent and allocated; ensuring resources are directed toward high priority
areas. This is critical for managing both operational and capital
expenditures.

THE END

LECTURE SERIES, BY MR. THABITI Page 5

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