Transaction Processing Explained

What Is Transaction Processing?

Transaction processing uses transactional processing systems (TPS) to process data and manage the exchange of information between two parties.

A transaction is defined as an exchange of goods, services or money between multiple parties. In finance, Gartner considers businesses to use four types of financial transactions. These are:

1. Sales
2. Purchases
3. Receipts
4. Paymemnts

Transaction processing simply enables the processing, tracking and recording of data associated with those transactions. These systems help organizations create, store, modify and retrieve data related to sales, purchases, payroll, inventory management and other business activities—all of which are vital components of business success.

Why Is Transaction Processing Important?

Keeping accurate transactional records is imperative—reporting is one of the fundamental functions of finance teams. Transactional data is used for financial reporting purposes, helps create the three most important financial statements for your business and helps in balancing GAAP and IFRS with other reporting needs. Monitoring transactions regularly can also help businesses stay competitive by looking for efficiencies and reducing operational costs.