What is External Transactions? Definition, Functions, and Examples (Complete)

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External transactions are an important part of the financial management of a business. These transactions involve the movement of funds or assets between the business and external entities, such as customers, suppliers and lenders. External transactions can include sales revenue, disbursement of loans, payments to buyers, or investments from shareholders. Understanding external transactions is essential for effective financial management, as it impacts financial health and business continuity. So what are you waiting for? Come on, see more below!

What is an External Transaction

External transactions are trading activities or exchange of goods and services that occur between two or more countries. This can involve import and export trade, foreign investment, technology transfers, and financial capital flows between different countries. External transactions have an important role in strengthening relations between countries and facilitating global economic growth.

One of the most common forms of external transactions is international trade, namely trade in goods and services between countries. Countries that produce certain goods and services can sell their products to other countries.

Meanwhile, countries that need certain goods and services can buy from other countries. Export and import transactions are key in strengthening economic growth and national development.

Apart from international trade, external transactions also include foreign direct investment. This occurs when a company or investor buys assets in another country or starts a new business in a foreign country.

These investments can help in technology development, job creation and economic growth. In addition, external transactions also include transfer technology.

This occurs when a company or institution from one country provides certain technology, knowledge or expertise to another country. This transfer of technology can assist in the economic and social development of the receiving countries.

In conclusion, external transactions involve the exchange of goods, services, and capital flows between different countries. This includes international trade, foreign direct investment, and technology transfer.

External transactions play an important role in strengthening relations between countries and facilitating global economic growth.

External Transaction Function

External transactions have several important functions in a country’s economy, including:

1. Strengthening Economic Growth

External transactions can help promote economic growth by expanding markets and increasing access to resources, technology and capital. Through international trade and foreign investment, countries can increase production and expand economic opportunities.

2. Increasing Access to Goods and Services

External transactions allow countries to access goods and services that are not available domestically. This can help expand consumer choice, increase productivity, and help reduce production costs.

3. Encouraging Innovation and Technology Development

Through technology transfer and foreign direct investment, countries can gain access to the latest technologies and increase their ability to develop new products and services. This can help increase competitiveness and adaptability to changes in global markets.

4. Strengthening Relations Between Countries

External transactions can help strengthen relations between countries. Through international trade, countries can expand trade and investment networks, which can help strengthen relations between countries.

This can help strengthen global economic stability and promote international peace and security.

In conclusion, external transactions have several important functions in a country’s economy, including strengthening economic growth.

Not only that, external transactions can also increase access to goods and services, encourage innovation and technological development, and strengthen relations between countries.

This makes external transactions very important in forming a strong and stable global economy.

Examples of External Transactions

The following are some examples of external transactions that often occur:

1. International Trade

For example, Indonesia sells palm oil to countries such as China, Japan or the European Union. In this case, Indonesia imports goods from these countries as part of bilateral trade.

2. Foreign Direct Investment

A company from the United States decided to open a new branch in Indonesia to take advantage of the available natural resources and manpower. The company brings foreign capital to Indonesia to open new branches and create jobs.

3. Transfer of Technology

A technology company from Germany decided to license a new technology to technology companies in Indonesia so they can use it in their production. This will help companies in Indonesia improve the quality of their products and improve production processes.

4. Flow of Financial Capital

For example, a company from Singapore buys shares in a company in Indonesia. In this case, Singapore invested in Indonesia through the purchase of shares.

5. Foreign Loans

The Indonesian government borrows money from the World Bank to finance infrastructure development in Indonesia. This helps Indonesia improve its infrastructure and improve its economy.

In summary, external transactions consist of international trade, foreign direct investment, technology transfer, financial capital flows, and foreign loans. These examples reflect how external transactions can help countries to strengthen their economies and strengthen relations between countries.

Types of Evidence of External Transactions

Evidence of external transactions are documents or records used to prove the existence of external transactions. The following are several types of external transaction receipts that are commonly used:

1. Invoice

An invoice is a document used to provide details about the goods or services that have been purchased or sold, as well as the costs associated with the transaction.

Invoices usually include information such as the names and addresses of the buyer and seller, the date of the transaction, the quantity and type of goods or services obtained or provided, the price per unit, and the total amount due.

Invoices are used as proof of transactions and also as a basis for payment, tax reporting, and management of related goods or services inventory. Invoices can also be used as a means of communication between buyers and sellers regarding the terms and conditions of transactions.

2. Contract

A contract document is a written agreement between two or more parties, which contains an agreement to do or not do something.

Contracts usually stipulate the rights and obligations of each party, including the time and place of execution, price, payment, and other provisions relating to transactions or activities stipulated in the contract.

Contracts can be short-term or long-term agreements, and can be formal or informal. Contract documents are important in the world of business and industry because they can provide certainty and security for parties involved in transactions or business activities.

3. Travel Certificate

Travel document is a document used to prove that goods have been sent from one place to another.

Travel documents usually contain information such as the type of goods, quantity, weight, and destination of delivery. In addition, the travel document also includes information about the sender and recipient of the goods, the number and date of the travel document, as well as other relevant information.

Travel documents are also often used as a basis for shipping goods, charging shipping costs, and reporting inventory. Travel documents are very important in the logistics and transportation process, because they can ensure that goods are sent safely and on time.

4. Receipt

Receipt is an official document used to provide proof of payment or receipt of money. This document contains information such as the name and address of the beneficiary, the amount of money received, the date of the transaction, and other information relating to the transactions made.

Receipts are used as proof of transactions and as a tool to clarify information about transactions made. Receipts are very important in the financial process and can help monitor a company’s cash flow, track payments, and ensure that all transactions are properly recorded.

Receipts can also help prevent disputes or problems related to paying and receiving money.

5. Certificate of Origin

A certificate of origin is a document issued by an authorized government agency in the country of origin of an item or product, which provides information about the origin of the item or product.

The certificate of origin includes information such as the name and address of the exporter, the name and address of the importer, the type of goods, the value of the goods, and the country of origin of the goods.

This document is very important in the export and import process, because it can be used as a basis for setting tax rates, import restrictions, or other special rules that apply in the destination country.

Certificates of origin can also help ensure the safety and quality of goods shipped, and facilitate the process of international trade.

6. Financial Reports

A financial report is a document that provides information about the financial position of a company or organization in a certain period. Financial reports include information such as balance sheets, income statements, cash flow statements, and notes to financial statements.

Financial reports are used to monitor a company’s financial performance, track cash flow, and provide information to investors, creditors and other related parties.

Financial reports can also be used to make business decisions, compare company performance with competitors, and maintain compliance with applicable financial and tax regulations.

Financial reports are very important in the business decision-making process and to ensure the company’s financial sustainability.

7. Check

A check is a payment instrument issued by a bank account holder to request payment from that bank. Checks usually consist of a sheet of paper containing instructions for the bank to pay a certain amount of money to a certain person or parties known as the “beneficiary”.

Checks can be used as a means of payment that is safe and easy to use in business or trade transactions.

Checks can also assist account holders in managing their finances, because they can provide proof of payment and make it easier to record financial transactions. However, the use of checks also carries certain risks, such as the risk of blank checks or counterfeit checks.

Therefore, the use of checks must be done carefully and regulated in accordance with applicable regulations.

It is important to maintain good and orderly evidence of external transactions to facilitate the audit process or to comply with applicable legal requirements. In addition, obtaining accurate evidence of external transactions also enables companies or countries to make sound and sustainable business decisions.


External transactions are an important component of financial management for businesses. These transactions involve the movement of funds or assets between the business and external entities, such as customers, suppliers and lenders. Proper management of external transactions is critical to maintaining accurate financial records, managing cash flows effectively, and making informed financial decisions. By understanding the importance of external transactions and their impact on the financial health of a business, companies can develop strategies to manage these transactions efficiently and effectively. Good luck!