What Is an Accounting Event?
An accounting event is a transaction that is recognized in the financial statements of a accounting entity. A company must record in its accounting records any economic event that impacts the company's finances. Instances of accounting events incorporate such things as recording the depreciation of an asset, the payment of dividends to investors, the purchase of materials from a provider, and the sale of goods to a customer.
Events, for example, natural debacles might be recorded as accounting events on the off chance that they damage a company's property and different assets on the grounds that the damage can be assigned a monetary value.
Grasping an Accounting Event
An accounting event is any business event that impacts the account balances of a company's financial statements. The recording of these events must follow the accounting equation, which indicates that assets must approach liabilities plus shareholders' equity. The sale of a decent, for instance, reduces inventory and increments accounts receivable. Since it influences profits, it likewise affects shareholders' equity.
Also, depreciation expenses lower asset values and reduce net income and retained earnings. They in this way reduce shareholders' equity.
Accounting events are just those events that can be quantifiable in monetary terms. Events, for example, natural fiascos might be recorded as accounting events on the off chance that they damage a company's property and different assets on the grounds that the damage can be assigned a monetary value. Different events, like the signing of a contract, may not influence the financial statements and in this way are not recorded as accounting events.
Types of Accounting Events
An outer accounting event is the point at which a company participates in a transaction with an outside party or there is a change in the company's finances due to an outside cause. For instance, on the off chance that a company purchases from a provider the raw materials required for the manufacturing of its goods, this would be ordered as an outside event. At the point when a company gets payment from a customer, this would likewise be an outside event that it would have to record in its financial statements.
An internal event includes different changes that should be reflected in the accounting entity's records. These may incorporate the "purchase" of goods like supplies from one department by one more department inside the company. The recording of depreciation expenses is one more type of internal accounting event.
Recording Accounting Events
A company reports accounting events in its financial statements. Contingent upon the transaction, the company might report the event in its balance sheet under assets and liabilities or in its income statement under incomes and expenses.
The timing of when a company records a transaction can fluctuate contingent upon the accounting method the company utilizes. In the event that a company utilizes the accrual accounting method, it records its financial transactions when they are incurred whether or not there has been a cash transfer or not.
In the event that a company utilizes the cash accounting method, it records its financial transactions when it really gets or burns through money. Most businesses utilize the accrual accounting method, with the exception of small businesses that could incline toward the relative simplicity of the cash accounting method.
- An accounting event is a transaction that an accounting entity reports in its financial statements.
- Companies sort accounting events as either internal or outer events.
- Instances of an accounting event incorporate the sale of goods, the purchase of raw materials, asset depreciation, and dividend payments to investors.
- The timing of when a company records an accounting event can differ contingent upon whether it utilizes the accrual accounting method or the cash accounting method.