Subsequent Event Simulator

Learn how to treat events that occur after the year-end.

Test Your Knowledge

For each scenario below, decide if the event requires an adjustment to the financial statements (**Recognized**) or just disclosure in the notes (**Nonrecognized**). The event occurs between the balance sheet date and the date the financial statements are issued.

Balance Sheet Date
(Dec 31)

EVENT OCCURS

Statements Issued

Scenario:

Key Concepts Quick Reference

Recognized Events (Adjusting)

These events provide new evidence about conditions that **existed at the balance sheet date.**

• **Rule:** Adjust the amounts in the financial statements.
• **Example:** A lawsuit was pending at year-end and is settled before statements are issued. You adjust the recorded liability to the actual settlement amount.
• **Example:** A customer goes bankrupt, confirming their year-end receivable was uncollectible. You adjust the allowance for bad debts.

Nonrecognized Events (Non-Adjusting)

These events relate to conditions that **did not exist at the balance sheet date** but arose afterward.

• **Rule:** Do not adjust the financial statements. Disclose in the notes if the event is material.
• **Example:** A fire destroys a warehouse in January. This condition didn't exist on Dec 31.
• **Example:** The company decides to issue new bonds or acquire another company in February.