Accounting refers to an art of recording and compiling the financial transactions and events in a significant manner and interpreting the results. The term transaction is different from the event, in the sense that the former involves the exchange of values, but the latter may or may not involve the exchange of values.
The term transaction can be understood as the business deal of buying and selling something for adequate consideration, carried out between two or more persons or entities. On the other hand, event alludes to the final outcome of the business transaction. To understand the meaning of accounting completely, one should know the difference between transaction and event, as the entire discipline is based on it.
Content: Transaction Vs Event
|Basis for Comparison||Transaction||Event|
|Meaning||Transactions are those business undertaking, that have a direct or indirect impact on the finances of the company.||An event alludes to the occurence of consequence to a business organization, due to a transaction that can be expressed in monetary terms.|
|What is it?||Cause||Effect|
|Accounting record||Transactions are recorded as they arise.||Only those events are recorded which are financial in nature.|
|Change in financial state||Results in change in the financial position of the company.||May or may not result in change in financial position of the company.|
Definition of Transaction
The term financial transaction is viewed as a business dealing, which involves the exchange of goods or services for value between two or more parties, firms or account. Any event which has some monetary impact on the financial statement of the business is called as a transaction. It may result in lt in the movement of value from one person to another.
These are recorded in the books of account, with a journal entry. When all the business transactions are tracked properly, it helps in analysing the financial soundness of the business.
The occurrence of a business transaction is on a regular basis, which includes purchasing or selling of goods, receipt of money from debtors, payment to creditors, extending or borrowing money, generating income or incurring expenses. There are two types of accounting transactions, given as under:
- Cash Transaction
- Credit Transaction
Definition of Event
In simple terms, an event may be described as any incidence, that occurs as a result of something. In an accounting sense, an event can be understood as the final outcome of a business activity, that can affect the account balances of the company if it is financial in nature.
Whenever there is an increase or decrease in the company’s assets or liabilities, an accounting event takes place. Therefore, it can change the fundamental accounting equation and can be expressed monetarily. There are two types of business events, given as under:
- Internal Event: When the business transaction takes place within the realm of the enterprise, the result would be an internal event. For example: Supplying raw material by stores to the manufactiuring department, payment of wages, etc.
- External Event: When the business entity transacts with an external organisation, the outcome would be an external event. For example: Purchasing/selling goods from/to another enterprise.
Key Differences Between Transaction and Event
The difference between transaction and event are described hereunder:
- By the term transaction, we mean the exchange of asset or discharge of liabilities for adequate consideration, between two persons or accounts. Conversely, event or otherwise known as the economic event is the happening of the consequence to the business enterprise as a result of a transaction, that can be measured in monetary terms.
- While transactions are the deliberate acts performed by the business entities, events are the results of the transactions.
- In accounting, all the transactions are recorded, as and when they take place, whereas only those events are recorded in the books of accounts which are of financial in nature.
- The business transactions may change the financial position of the company, as it has a direct impact on the company’s finances. On the contrary, the events may or may not have an impact on the business finances.
- The scope of an event is wider than a transaction because a transaction is an event, but an event may or may not be a transaction.
Suppose Alpha Ltd. is a supplier of cycles, which costs Rs. 4200 per cycle. Beta Ltd. purchases 20 cycles from Alpha Ltd. @ Rs. 5000 per cycle. The purchasing and selling that took place between the two business entities is a transaction, while the reduction in stock and profit earned is an event.
Therefore, it is right to say, all transactions are events, but all events are not transactions because to become a transaction, an event must be of financial nature. The transaction is nothing but business activity, that can be expressed in monetary terms, while an event is just the ultimate result of the transaction.