Accounting is very important when it comes to keeping records of financial transactions and events in a significant way. Events and transactions are two very important concepts and terms in the accounting domain.
They are occurrences that may or may not have an effect on the business.
Event vs Transaction
The difference between an event and a transaction is that an event is any occurrence that may or may not have an impact on the financial change of the business, whereas transactions are the recorded events that always have an impact on the financial situation of the business either directly or indirectly.
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An event is the outcome of a business that may or may not affect the account balance of that company. If an increase or decrease occurs in assets or liabilities, then it is known that an event has taken place.
There are two major types of events, these are internal events and external events.
On the other hand, a transaction involves an exchange of goods or services between multiple parties or accounts. It has an assured impact on the monetary financial situation.
It is known that all transactions are an event as well. The main types of transactions are cash and credit transactions.
Comparison Table
| Parameters of Comparison | Event | Transaction |
|---|---|---|
| Meaning | Any occurrence that is related to a business and that may or may not have an effect on it. | Recorded incidents or occurrences of a business that have an impact on the financial situation of the business, directly or indirectly. |
| Scope | Wide | Narrow |
| Financial change | It may or may not have an effect on the financial position. | It definitely brings about a financial change. |
| Measurability | It may or may not be measured in monetary terms. | It has to be measured in monetary terms. |
| Inclusion | All events aren’t capable of being transactions. | All transactions are events. |
| Documentary Evidence | Not necessary. | Important to have valid documents. |
| Motive | It may or may not have a motive behind itself. | It has to have a purpose or motive behind it. |
What is Event?
An event can be described as an incident or occurrence that affects the business, directly or indirectly. An accounting event is said to take place whenever there is an increase or decrease in the business’ assets or liabilities.
This can potentially affect the fundamental accounting equation and may or may not be expressed monetarily.
If an event has a quantifiable monetary impact, then it can be classified as a transaction. Any other events that don’t classify as a transaction don’t have an immediate monetary impact on the accounts of the business.
These events are, as a result, not recorded in the account books.
There are two main types of events in a business. These include internal and external events. Internal events are when the transaction takes place within the enterprise or business itself.
An external event is when the business entity has a transaction with an external organization.
The payment of wages is an example of an internal event. Purchasing or selling goods or services from or to another enterprise is an example of an external event.
An event may not have any specific motive or purpose behind it. The magnitude or scope of an event is very wide. There is no need for valid documents for an event as it may or may not be necessary to keep accounting for it.
What is Transaction?
A transaction is a term that involves an exchange of goods or services between multiple parties or accounts. A transaction is any event that has a monetary effect on the financial situation of the business.
Transactions are recorded with the help of journal entries in accounting. Tracking the transactions in a business will help in analyzing its financial credibility and soundness. You need valid documents for filing a transaction.
It has a narrow scope. Business transactions tend to occur on a regular basis. These can include everything from receipt of money, payments, incomes, incurring expenses, purchasing and selling of goods, etc.
There are two types of transactions. They are cash and credit transaction.
In cash transactions, an immediate outflow of cash occurs towards purchases of goods, services, and assets. They usually tend to be consumer or business-oriented.
Credit transactions are those which include the repayment of money loaned or payment for goods, services, and assets.
Each transaction has an impact on the financial position of the business. If there is no financial change (profit or loss), then there can be no transaction.
It results in either the outflow or inflow of cash, goods, or services. It can be both qualitative and quantitative. Transactions need to have a motive or purpose behind them always.
Main Differences Between Event and Transaction
- Events are an occurrence of incidents that are related to a business, and they must have an effect on the business. On the other hand, transactions are recorded events that have an impact on the financial situation of the business.
- The scope of an event is wide, whereas the scope of a transaction is narrow.
- Events may or may not have an impact on the financial position, but transactions will always bring about a financial change for the business.
- Events may or may not be measured in monetary terms, whereas transactions are always measured in monetary terms.
- All events can’t be transactions. However, all transactions are events.
- An event does not need to have any valid documents, whereas a transaction needs to have valid documents.
- An event may not have a specific motive. However, a transaction will always have a motive behind it.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
