What Is an Accounting Event?
An accounting event is a transaction that is recognized throughout the financial statements of an accounting entity. A company will have to report in its accounting knowledge any monetary event that has effects on the company’s finances. Examples of accounting events include such things as recording the depreciation of an asset, the associated fee of dividends to investors, the purchase of materials from a supplier, and the sale of goods to a purchaser.
Events identical to natural screw ups may be recorded as accounting events within the match that they hurt a company’s assets and other assets given that hurt can be assigned a monetary worth.
Figuring out an Accounting Event
An accounting event is any trade event that has effects on the account balances of a company’s financial statements. The recording of the ones events will have to follow the accounting equation, which specifies that assets will have to identical liabilities plus shareholders’ equity. The sale of a good, for example, reduces inventory and can build up accounts receivable. Because it affects income, it moreover has an affect on shareholders’ equity.
Similarly, depreciation expenses lower asset values and reduce internet income and retained earnings. They thus reduce shareholders’ equity.
Accounting events are best those events that can be measurable in monetary words. Events identical to natural screw ups may be recorded as accounting events within the match that they hurt a company’s assets and other assets given that hurt can be assigned a monetary worth. Other events, such since the signing of a contract, won’t have an effect on the financial statements and therefore are not recorded as accounting events.
Key Takeaways
- An accounting event is a transaction that an accounting entity tales in its financial statements.
- Examples of an accounting event include the sale of goods, the purchase of raw materials, asset depreciation, and dividend expenses to investors.
- Companies categorize accounting events as each inside or external events.
- The timing of when a company knowledge an accounting event can vary depending on whether or not or no longer it uses the accrual accounting method or the cash accounting method.
Varieties of Accounting Events
External Events
An external accounting event is when a company engages in a transaction with an out of doors celebration or there is a trade throughout the company’s finances as a result of an external reason why. For instance, if a company purchases from a supplier the raw materials sought after for the manufacturing of its pieces, this might be categorised as an external event. When a company receives price from a purchaser, this is able to also be an external event that it will want to report in its financial statements.
Internal Events
An inside event involves other changes that want to be reflected throughout the accounting entity’s knowledge. The ones would possibly include the “gain” of goods identical to supplies from one department via every other department all through the company. The recording of depreciation expenses is every other type of inside accounting event.
Recording Accounting Events
A company tales accounting events in its financial statements. Depending on the transaction, the company would possibly file the improvement in its balance sheet beneath assets and liabilities or in its income statement beneath revenues and expenses.
The timing of when a company knowledge a transaction can vary depending on the accounting method the company uses. If a company uses the accrual accounting method, it knowledge its financial transactions when they are incurred regardless of whether or not or no longer there was once a cash transfer or not.
If a company uses the cash accounting method, it knowledge its financial transactions when it in truth receives or spends money. Most corporations use the accrual accounting method, apart from small corporations that can favor the relative simplicity of the cash accounting method.
