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Accounting Events and Transactions

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Moneyzine Editor
2 mins
December 12th, 2023
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Accounting Events and Transactions

Definition

The accounting industry generates billions of dollars. Accounting industry statistics indicate the size of the accounting industry was $544.06 billion in 2020. It gives us an idea of how many accounting events and transactions occur every day in the world. In this article, we will explain what are accounting events and transactions. 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.

All transactions should be legal, however, in the financial industry, criminals can carry out illegal transactions. For example, according to statistics, Bitcoin is one of the main cryptocurrencies used in criminal activity.

Related Terms

Income Statement
The income statement is a financial accounting report that demonstrates how net income, or profit, is derived from revenues. The main categories appearing on an income statement include revenues, cost of goods sold, operating expenses, non-recurring items and net income.
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Balance Sheet
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
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Assets
The accounting term used to describe an economic resource, which is owned by the corporation and expected to provide future benefits to its operation, is asset. Appearing on the balance sheet, assets are typically broken down into two categories:
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Moneyzine Editor
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Liabilities
The financial accounting term liability is used to describe the debt of a corporation that results from a transaction involving the transfer of an asset or the provision of a service. Liabilities are reported on a company's balance sheet.
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The financial accounting term revenue is used to describe the price charged to customers for good sold, or services rendered. Revenues are reported on a company's income statement.
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Moneyzine Editor
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Expenses
The term expense is used to describe the outflow of money to pay for a product or service. In financial accounting, expenses are defined as the cost of goods sold, or services used up, in the process of producing revenues for a company. The expenses of a company are reported on the income statement.
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