Definition
The accounting industry generates billions of dollars. Accounting industry statistics indicate the size of the accounting industry was $544.06 billion in 2020. It gives us an idea of how many accounting events and transactions occur every day in the world. In this article, we will explain what are accounting events and transactions. The term accounting event refers to a change in an item that should be reflected in the company's financial statements. Accounting events can be internal or external and usually involve a change in assets, liabilities, revenues, expenses or owner's equity.
Explanation
An accounting event usually involves a transaction that is measurable, relevant and reliable. Events that meet these conditions are then reported in the company's financial statements; including the balance sheet (assets, liabilities) and the income statement (revenues, expenses).
Accounting events are divided into two broad categories:
External Events: involves a change between the business and its external environment. Examples include increases in the price of raw materials, products or services provided to the business; as well as natural disasters such as a flood that affects a supplier.
Internal Events: involves a change within the business, such as the consumption of raw materials in the manufacture of a product.
A transaction is an event that involves the exchange of value between two entities; that is to say, each entity receives and sacrifices value. For example, the business can purchase raw materials from a supplier. Transactions can also happen in one direction; value is provided to another entity without receiving value in return. For example, when a company pays its shareholders dividends, it provides something of value to those shareholders, but does not receive anything in return.
All transactions should be legal, however, in the financial industry, criminals can carry out illegal transactions. For example, according to statistics, Bitcoin is one of the main cryptocurrencies used in criminal activity.