What is an Accounting Event?
A transaction recorded in a company's financial records is referred to as an accounting event. Each economic activity affecting the firm's revenues must be recorded in the company's accounting records. Accounting events involve activities like documenting an asset's depreciation, paying dividends to shareholders, buying supplies from suppliers, and selling items to a consumer.
In-Depth Understanding of an Accounting Event
Any business event is considered an accounting event if it affects the balance sheets in the company's financial reports. The accounting equation stipulates that holdings must equal liabilities plus stockholders' equity and must be followed while documenting these occurrences. For instance, inventory decreases when a product is sold, and accounts receivable increase. It impacts profitability, which affects shareholders' equity as well.
Depreciation costs affect net revenue and retained earnings as they diminish asset values. As a result, they lower investors' equity.
Only occurrences that are quantifiable or measurable in monetary terms qualify as accounting events. Whenever a natural catastrophe or other event causes damage to an organization's assets or other property for which a monetary value can be ascribed, the harm may be documented as an accounting event. Some occasions (such as signing the contracts) might not affect the financial statements and are not thus recognized as accounting events.
Types of Accounting Events
When a business transacts with a third party or changes its financial situation owing to a third party, this is referred to as an external accounting event. For instance, a corporation might acquire the raw ingredients required to manufacture its products from a supplier, which would be considered an external occurrence. A corporation would also need to include the receipt of money from a client as an external event in its financial information.
An internal event brings about additional alterations that must be recorded in the financial entity's records. This might involve a department inside a firm -purchasing" materials from another department in exchange for goods. Another kind of internal accounting event is the tracking of depreciation costs.
Recording Accounting Events
It is the financial accounts of a firm that include or record accounting events. Depending on the transactions, the business may record the events in its financial income statements under expenses and revenues or balance sheets under assets and obligations.
Depending on a firm's accounting technique, a transaction may be recorded at different times. When a corporation employs the accrual accounting technique, it records all monetary operations as they are incurred, whether or not the money is transferred.
When a business employs the cash accounting technique, it logs every financial transaction as soon as money is received or spent. Most firms employ the accrual accounting system, except small enterprises, which may choose the relatively easy cash accounting approach.
The term "event" often refers to an occurrence. Events abound throughout human existence. Every individual and their social, national, and economic activities is an event.
According to A.L. Kholer, in this instance, -an event is a procedure or a phase of a process that has a specific time and location of occurrence."
Several events in the larger sphere of human existence may be divided into two broad categories, such as non-monetary and monetary events.
The term -non-monetary event" refers to situations that have nothing to do with money or the value of money and whose occurrence has no impact on one's financial situation.
For instance, creating a book, passing a test, winning a game, planning a speech, ordering products, etc.
Money-related or money-worth-related events-those affecting a person's or an organization's finances-are monetary events.
For instance, regular shopping expenses, birthday expenses, getting gifts from family members on your birthday, home improvement expenses, rent payments, etc.
Only such events are considered financial events from the accounting point of view if they cause a change in the financial position of a person or entity and if accounts are required to be maintained. As a result, every financial occurrence is regarded as an event in accounting. Events are referred to as such in accounting if they change the finances of an individual or firm in a way that can be quantified individually or collectively in monetary terms.
Transactions are the sort of accounting events that result in economic or monetary changes.
Characteristics of an Event
Nature of Events
Different things happen at different times. The following three groups of occurrences are divided according to the specific nature of events:
Accounting is necessary only when economic events occur. The term -accounting of events" refers to the methodical collecting, categorizing, and summarising of events, creating financial statements, and communicating knowledge through analysis.
The actual state of the finances is revealed via accounting. Considering the explanation above, the accounting process of occurrences may be divided into four parts:
These four steps also apply to the accounting procedures of a commercial entity. Transactions are journalized at the first stage. It's known as recording. The recorded transactions are categorized and compacted before being placed in the ledger in the second phase. Segmentation is another name for this (summarization) function. After the financial year, a process known as summarising is used to summarise ledger account balances in a statement. After the accounting cycle, accounting records are created in the fourth and final step.