Transaction and event are two fundamental concepts in the business and accounting field. In this article, we will understand the complete difference between transaction and event with the help of the following set of concepts.
Definition Of Transaction
A transaction refers to an act that involves an exchange of goods and services for a value between two or more two parties, entities, or accounts. We can also define a transaction as any action that has a monetary impact on the financial statement of the business is called a transaction.
All the transactions are recorded in the account’s books, with the help of journal entries. Recording and proper tracking of transactions assist a business in analyzing its financial credibility and soundness. It is a narrow concept and tends to occur on a regular basis. It includes all the activities like buying and selling of goods and services, receipt of debtors, payment to creditors, incurring expenses, incomes, etc. The two types of transactions that may occur are as follows.
- Cash Transaction- It involves the immediate payment of cash towards purchases of an asset, goods, or services.
- Credit Transaction- Such type of transaction includes repayment of money loaned or payment of goods, services, or assets on a credit basis.
Definition Of Event
An event can be explained as, any type of event or incident that impact a business either directly or indirectly. An accounting event occurs when there is an increase or decrease in the company’s assets or liabilities. An event can potentially change the fundamental accounting equation and may or may not be expressed monetarily. The two types of business events are as follows.
- Internal Event- When business transactions take place within the business entity, it is said to be an internal event. An example of an internal event is the payment of wages or supplying of goods from stores to the production departments.
- External Event- An External event is said to occur when a business entity transacts with an external organization. For example, buying/selling goods and services from or to another enterprise.
Transaction Vs Event(Comparison Table)
|Basis For Difference||Transaction||Event|
|Definition||Transaction refers to the recorded incidents or occurrences that either have a direct or indirect impact on the financial situation of a business.||It refers to an occurrence or consequence to a business entity, that may or may not have any impact on it.|
|Recording||Transactions are recorded as and when they arise.||Only the events which are financial in nature, get recorded.|
|Financial Change||Definitely brings a change in the financial status of a company.||It may or may not have an impact on the financial status of a firm|
Key Differences Between Transaction And Event
The major differences between transaction and event are as follows.
- A transaction refers to an act that involves an exchange of goods and services for a value between two or more two parties, entities, or accounts. On the other hand, an event can be explained as, any type of event or incident that impact a business either directly or indirectly.
- While the transaction is a narrow concept, the event is comparatively a broader concept.
- In accounting and finance, all the transactions get recorded as and when they arise. On the other hand, only the events that are financial in nature, are recorded in the books of accounting.
- All transactions are events but all events cannot be transactions.
- While transactions are measured in monetary terms, events may or may not be recorded in monetary terms.
- Since the transaction has a direct influence on the company’s finances, so it may result in a financial change in the financial position of the firm. On the other hand, the events may or may not affect the financial position of the business.
For example, let’s suppose company A limited supplies bikes, which cost Rs. 50000 per bike. Another B limited company purchases 10 bikes from A limited at Rs. 55000 per bike. So in this case the buying and selling activity that took place between these two companies is a transaction, while the reduction in the stock and profit earned by A limited will be known as an event.
So, with the above explanations, we can say that all transactions are events but all events cannot be transactions. This is because transactions are only considered financial in nature so to become a transaction an event must be financial in nature too. While transactions are measured in monetary terms, events may or may not be recorded in monetary terms.