Event and Transaction | What do you mean by Event and Transaction? | Accounting | Sunil Sir

Описание: Definitions and explanations
Event:
An event is an incident or occurrence that concerns the business or impacts the business dealings. An event that has measurable monetary impact qualifies as a transaction which has been elaborated on in the subsequent paragraph. Events that do not qualify as transactions are those that although impact the business do not have immediate monetary impact on its accounts. Events (other than transactions) are thus not recorded in the books of accounts of the company.

Events, although do not have immediate monetary impact, it is important for management to keep track of them as they may lead to future monetary impact for the business.

An example of an event can be death of a senior key management personnel or a large scale employee strike. These events do not have immediate monetary impact and thus do find any place in the books of accounts. However, they have more long lasting impact on the business – employee strike may negatively impact production and sales.

Transaction:
A transaction is a business event that has impact, direct or indirect on finances of the business. An event becomes a transaction if it involves exchange of values or resources and can be measured in monetary terms. It is thus recorded in its books of accounts. A transaction is recorded by a journal entry in the books of accounts.

A plethora of events can qualify as transactions such as purchase or sale of goods, payment for expenses etc.

A transaction need not involve actual exchange of cash but must have monetary impact to qualify as a transaction. For example, credit sales of goods and services do not involve cash exchange however they result in recognition of income and creation of assets i.e., accounts receivable or debtors, thus it has monetary impact and qualifies as a transaction. Similarly, credit purchases of goods and services do not involve cash payments but result in recognition of liabilities i.e., accounts payable or creditors.

Difference between event and transaction:
The difference between event and transaction has been given below:

1. Meaning
Events are all incidents or occurrences that relate to the business or have an impact on the business of the entity.
Transactions are those events which have immediate and measurable monetary impact on the books of accounts of the entity.
2. Exchange
Events other than transactions do not involve exchange of value or resources.
Transactions involve exchange of value of resources.
3. Measurability
Events other than transactions are not immediately measurable in monetary value.
Transactions are measurable in monetary value.
4. Impact on a business
Events have an impact on business, but events other than transactions do not have an immediate monetary impact. Their impact could be more far reaching and seen in the future.
Transactions have immediate monetary impact on the finances of a business.
5. Disclosure in books of accounts
Events, other than transactions are not recorded through the books of accounts. They however may be disclosed in management report or annual report or audit report as it may have monetary impact for the business in the future.
Transactions are recorded through journal entries in the books of accounts.
6. Inclusion
Events can either qualify as transactions or not qualify depending on the impact that they have.
All transactions are events.
7. Scope
The scope of events is wide as it encompasses all occurrences that concern the business.
The scope of transactions is narrower as it includes only those events that have immediate and measurable monetary impact.
8. Examples
Examples of events include – death of key persons, labor union strikes etc.
Examples of transactions include business dealings such as purchase and sale of goods and services.