Events, Transactions and Adjustments

Events: Internal and external - action for change in value (promise/ idea / object)

External Events - involves a change between the business and its external environment.  Examples inflation/deflation, increase in price of raw materials, natural disasters such as a flood and landslides.

Internal Events - involves a change within the business, e.g. use of machinery in production process, fire catches a production unit.

Business events: accounting event vs non accounting events

Non accounting events: Events which does not impact in financial position of an entity. E.g. unofficial meeting of employees

Accounting events: An accounting event usually involves a transaction that is measurable, relevant and reliable. Results change in value of assets, equity, liabilities, income and expenses

Event within balance sheet date

Transactions: Every transaction is event which involves the exchange of value (promise / idea / object) between two entities.  For example, when an entity purchases raw materials from a vendor it pays the price for materials it purchases.

Non-cash transaction: Payment for value is not in the form of cash - issue of equity to vender as payment for material purchased, conversion of debt to equity

Cash transaction: up-front cash payment at the point of purchase for the value of materials

Credit transaction: delayed payment for the value of purchase

Adjustments are result of an event

Adjustment as a result of event within balance sheet date E.g. Depreciation is an adjusting entry which reflects the consumption of assets in the production during the period.

Events after balance sheet date - Adjustable event vs non-adjustable events (Check IAS 10)  - favorable or unfavorable, which have occurred between the balance sheet date and the date of preparation or approval of the financial statements for its disclosure.

Adjustable event – Those that show the conditions that existed at the balance sheet date

Non-adjustable event – Those that are indicative of conditions that have emerged after the balance sheet date (requires disclosure for material events)