DIFFERENCE BETWEEN TRANSACTION AND EVENT
Before understanding the difference between transaction and event, one must clearly understand the two concepts.
TRANSACTION
Transaction refers to any exchange of goods and services on cash or credit basis by the business with the outside parties i.e. other business or customer. Transaction is an economic activity. It has an effect on the net worth or financial position of the business.
FEATURES OF TRANSACTION
The following are the features of transaction:
ECONOMIC ACTIVITY
Transaction is an economic activity. It includes the dealing such as purchase and sale of goods, lending or borrowing money etc. It does not include any kind of social activity such as inviting a friend to dinner or giving money as gift on some occasion.
IMPACT ON FINANCIAL POSITION
Transaction has a great bearing on the financial position of the firm. Each transaction may have little or great impact on the financial position of the firm. It results in either inflow or outflow of cash and inflow or outflow of goods and services.
MAY BE QUANTITATIVE OR QUALITATIVE
Transaction may be quantitative or qualitative. Quantitative transactions are those that involve the exchange of money. Example: purchase of furniture worth Rs. 5,000 for cash.
On the contrary, qualitative transactions are those that involve no exchange of money. Example: Depreciation or decrease in the value of the asset.
FINANCIAL CHANGE
Transaction brings financial change for the business or parties. Only that event is regarded as transaction that impacts the financial position. Example: Death of a debtor turns the amount due from him/her into bad debt, which is a monetary loss, hence regarded as transaction.
On the other hand, death of an inefficient employee leads to no monetary loss, hence not regarded as transaction.
EVENT
An event may be described as anything that occurs as a result of something. These are the occasions which cause changes in the value due to time element. An event can be said as the final outcome of a business activity, which can affect the accounts of the company, if it is financial in nature.
TYPES OF EVENTS
There are mainly two types of events:
INTERNAL EVENT: When the transaction takes place within the framework of the organization, the result would be an internal event. Example: Supplying raw material by stores to the manufacturing department, payment of wages, transfer of material from one department to another etc.
EXTERNAL EVENT: When the business entity transacts with an external organization, the outcome would be an external event. Example: purchase of goods from supplier, sale of goods to the customer etc.
DIFFERENCE BETWEEN TRANSACTION AND EVENT
| BASIS OF DIFFERENCE | TRANSACTION | EVENT |
| MEANING | Transaction refers to any exchange of goods and services on cash or credit basis by the business with the outside parties i.e. other business or customer. | An event may be described as anything that occurs as a result of something. These are the occasions which cause changes in the value due to time element. |
| CAUSE OR EFFECT | Transaction is a cause. | An event is an effect. |
| ACCOUNTING RECORD | All transactions are recorded in the records as they arise. | Only those events are recorded which are financial in nature. |
| IMPACT ON FINANCIAL POSITION | It results in change in the financial position of the company. | It may or may not impact the financial position of the company. |
| NATURE OF CHANGES | It involves quantitative as well as qualitative changes. | It involves only qualitative changes |
| SCOPE | It is wider in scope. | It is narrower in scope. |
| TYPES | These are of many types: Cash transaction Credit transaction External transaction Internal transaction Exchange transaction Non-exchange transaction | An event is of mainly two types only: Internal event External event |
| PARTIES INVOLVED | It always involves more than one parties. | It involves only one party. |
| NATURE OF ACTIVITY | It is an economic activity. | It is a historical activity. |
| FEATURE | All transactions are events. | All events are not transactions. |
CONCLUSION
To conclude the difference between transactions and events, it can rightly be said as all the transactions are events but all events are not transactions. The transaction results out of the business activity and event results out of the transaction.