Related Party Transactions are financial dealings or other arrangements between entities that have a prior existing relationship, often characterized by common ownership, control, or significant influence over one another. For instance, this could include a parent company providing a loan to its subsidiary, or a transaction between a company and its major shareholder where the parties are closely linked.

These transactions are a central concern for financial reporting because they might not always reflect market conditions, as the relationship could influence the terms. Disclosure of Related Party Transactions in financial statements is a requirement under various financial standards, as it aids in maintaining transparency and allowing stakeholders to evaluate if the transactions were conducted at arm's length.

To illustrate, suppose a company sells goods to a firm owned by its CEO's family at preferential rates. This transaction would be classified as a Related Party Transaction and should be disclosed. The aim is to ensure financial fairness and avoid conflicts of interest in the dealings.