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Accounting Events and Transactions

Last updated 25th Apr 2022
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Definition

The term accounting event refers to a change in an item that should be reflected in the company's financial statements. Accounting events can be internal or external and usually involve a change in assets, liabilities, revenues, expenses or owner's equity.

Explanation

An accounting event usually involves a transaction that is measurable, relevant and reliable. Events that meet these conditions are then reported in the company's financial statements; including the balance sheet (assets, liabilities) and the income statement (revenues, expenses).

Accounting events are divided into two broad categories:

  • External Events: involves a change between the business and its external environment. Examples include increases in the price of raw materials, products or services provided to the business; as well as natural disasters such as a flood that affects a supplier.
  • Internal Events: involves a change within the business, such as the consumption of raw materials in the manufacture of a product.

A transaction is an event that involves the exchange of value between two entities; that is to say, each entity receives and sacrifices value. For example, the business can purchase raw materials from a supplier. Transactions can also happen in one direction; value is provided to another entity without receiving value in return. For example, when a company pays its shareholders dividends, it provides something of value to those shareholders, but does not receive anything in return.

Related Terms

income statement, balance sheet, assets, liabilities, revenues, expenses

Moneyzine Editor

Moneyzine Editor