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Certain other events that have a financial impact on the business have to be recorded as well. They’re called events because they’re not based on give-and-take bargaining — unlike the something-given-for-something-received nature of economic exchanges. Events such as the following have an economic impact on a business and are recorded:

 A business may lose a lawsuit and be ordered to pay damages. The liability to pay the damages is recorded.

 A business may suffer a flood loss that is uninsured. The waterlogged assets may have to be written down, meaning that the recorded values of the assets are reduced to zero if they no longer have any value to the business. For example, products that were being held for sale to customers (until they floated down the river) must be removed from the inventory asset account.

 A business may decide to abandon a major product line and downsize its workforce, requiring that severance compensation be paid to the laid-off employees.

As we explain in more detail in Chapter 3, at the end of the year, the accountant conducts a special survey to ensure that all events and developments during the year that should be recorded have been recorded so that the financial statements and tax returns for the year are complete and correct.