Events that take place after the balance sheet date but before financial statements are released are referred to as subsequent events. These can be things like purchases, sales, loans, and bankruptcies. The financial accounts of a corporation may be significantly impacted by later events. For instance, the balance sheet would need to represent a corporation filing for bankruptcy after the date of the balance sheet. The income statement will also need to represent any significant sales that a firm makes after the balance sheet date.
It is crucial to remember that if future events have an influence on the financial statements, they only need to be declared if they are relevant. For instance, a modest sale made by a business after the balance sheet date wouldn’t require disclosure.
There are two different categories of following events: those that take place after the balance sheet date but prior to the release of the financial statements.
those that take place following the release of the financial statements.
Unadjusted events are those that take place after the balance sheet date but before the financial statements are published. Financial statements do not have to provide information on unadjusted occurrences. Companies should, however, report unadjusted events if they anticipate that they will materially affect the financial statements.
“Adjusted events” are occurrences that take place after the financial accounts are published. The financial accounts must indicate adjusted events.
Examples of subsequent events include:
- Sales
- Purchases
- Loans
- Bankruptcies
- Divestitures