Hello folks, if you are a fresh accountant or bookkeeper you don’t need to worry about finding the difference between events and transactions.
Understanding the difference between events and transactions in finance and accounting is important. In sample words, a transaction is any business event involving financial elements that have any direct or indirect influence on business’s financial position.
On the contrary, the event does not have a direct influence on the financial position of the business. We may say all the business transactions are events but all the events are not transactions.
Suppose Acumen Ltd. is a supplier of printer machines, which costs Rs. 100 per printer. 1st January 2024 both companies sign an agreement that Wise Corporation Ltd. purchases 200 printer machines from Acumen Ltd. @ Rs. 5,000 per printer. On 20th January 2024, Acumen Ltd delivered the order and Wise Corporation Ltd paid Rs.500,000/- immediately.
Here in the above example, On 1st January 2024 signing the agreement is an event while on 20th January 2024 paying Rs. 500,000/- to Acumen Ltd is a business transaction.
Transactions always have an impact on the accounting equation while events can not change accounting equation.
In accounting, it is necessary to record all transactions because transactions are directly linked with accounting equation. Even trivial unrecorded transaction has significant repercussions. Unrecorded transaction lead to wrong calculation of business profits and losses. However, event recording is not mandatory because events may not have impact on financial position of company.
Event have wide scope than transaction it has significant implication. Like change of ownership has bigger implication than purchase of furniture or paying utilities bills of company. But for accounting or bookkeeping perspective transaction has more importance than business event.
There are some general examples of events and transaction.
- Purchase of Rs. 1,000/- supplies for office (Transaction)
- Transfer of raw material from warehouse to production department (Event)
- Sue the vendor for breaching contract (Event)
- Selling goods and services to customer on cash (Transaction)
- Signing joint venture with other company (Event)
- Purchase of furniture and fixture on cash (Transaction)