 Welcome to the session. This is Professor Farhad in which we will discuss subsequent event also known as post balance sheet. Post means after the balance sheet. Now what is the subsequent or the post balance sheet events? Well, we have to understand that when we issue the financial statement, let's assume we are dealing with a calendar year and the year ends December 31st. This is our year end. However, it may take us one or two months or 90 days to prepare to issue the financial statements. Although they are dated December 31st, they may not be issued until March 1st. So this is the period that we are discussing. Post balance sheet date. The statement will be dated 1231, but there might be some events that occur between the balance sheet date 1231 and the issue date during this period. So this period could be several weeks and sometimes several months before the issuance of the financial statement. Now, if you're asking why that's fine, most likely you never work in the real world because in the real world it takes time to prepare and finalize the financial statements. You might have to do an inventory count, inventory prices. You might have to reconcile your subsidiary ledgers with controlling accounts. You might have to prepare the adjusting entries and preparing the adjusting entries. You have to collect information about the company that takes time. You have to make sure the company accounted for all transaction. All transactions are entered into the proper period. You have to finalize the audit report, which takes time. Then you issue the financial statements. So all of this could be happening in this period and also during this period, events could take place. Now, what do we have to do during those events? Well, important transaction could occur between the two dates between December 31st and March 1st. That could affect your financial position. And these are the events that we refer to as subsequent or post-balance sheet event. We are going to break them into two types, type one and type two. And those are the types of events that could have an effect on the financial statement and may need disclosure. They may need disclosure or they may need, guess what? In addition to disclosure, they may need to prepare journal entries. So now we need to know what is type one, what is type two? Before we discuss type one and type two, most likely you are an accounting student or a CPA candidate if you are looking. And if you are watching, welcome. You have arrived. Go a step further, farhatlectures.com. The reason you are here is you are looking for some supplemental material. Go a step further. I can help you with your accounting courses. I can help you pass your CPA exam. My resources would include lectures, multiple choice, true, false, exercises. If you have not connected with me on social media, LinkedIn, YouTube, Twitter, Reddit, Instagram and Facebook, please do so. So let's start with type one. Type one are conditions that already existed. And when I say already existed, it means they existed as of the balance sheet date. And we're going to assume the balance sheet date is the calendar year December 31st. So events that provide additional evidence about conditions that existed at the balance sheet date. What are we looking at here? Well, we could make estimates. So on 1231, we made estimates. We always make estimates. By March 1st, we might have learned new information about those estimates. Then those are type one conditions. Settlement of a lawsuit. So we had a lawsuit pending on 1231 between the between 1231 and March 1st, that lawsuit was settled. bankruptcy of a major customer with a large account receivable that existed. We had a customer with a large receivable. And that customer is a large customer in between the balance sheet date and the issue date. Guess what? They went bankrupt. Settlement for a major warranty obligation that existed. And notice, I keep saying the word existed. It means they existed as of the balance sheet date. They were not new. So what needs to be done with type one, with type one, we need to debit something and credit something else. It means we need to adjust them. We need to prepare an adjusting entries for conditions that already existed. So the financial statements are better, fairly presented. They give a better picture. Now we have type two conditions that did not existed, did not existed as of 1231. So event that arose or started after the balance sheet date. So January 5th, those events, we don't recognize them. It's not we don't that we ignore them. We don't recognize them as part of S 1231. Of course, we're going to recognize them for the new year. But we don't recognize them as of 1231. So no debit and credit for 1231. Okay, we disclose them, we can disclose the information. Just to make sure that, you know, if it's relevant, not misleading, if we need to disclose those events, if they're important, we will disclose them. Okay, but they will not require any adjustments. This closing, we can disclose them if we choose to. I said here, don't require disclosure. If we want to, we can always disclose. Okay, product or management changes. Let's assume there was product or management changes since the balance sheet date. If we think that information is important, that information is relevant, we can disclose. Do we have to? Not really. Why not? Because what's going to happen is we are going to disclose this information in some other way. So it doesn't have to be part of 1231. So we can disclose when a press release. Unionization, for example, Amazon, Amazon going through unionization. Let's assume a unionization effort started after 1231. And Amazon believe that's an important event that we need to disclose. They might disclose it, but definitely we don't book any entries for those events. Marketing agreements, laws of an important new customer. Yes, they're important, but they're new. They did not exist as of the balance sheet date. Therefore, for those transactions, we don't book an entry. We don't book an entry. So those are the type two. We don't, they're not recognizable. If you want to disclose them, you're going to disclose them in some other way. But if you think they will be better to be part of 1231, why not? The more disclosure, the better, I guess. What should you do now? Go to farhatlectures.com, work multiple choice through false questions that's going to help you understand better those post balance sheet events, those subsequent events. Study hard, your CPA exam is worth it, your accounting courses are worth it. Good luck and stay safe.