What is meant by events after the balance sheet date?

Events after the balance sheet date are significant financial events that occur after the date of the balance sheet, but prior to the date that the financial statements are issued. For example, a company's balance sheet that has the heading of December 31, 2020 might not be finalized and distributed until February 1, 2021. During January new information may arise that has financial significance. Perhaps there is an event that provides more information about the conditions actually existing on December 31. The second type of event would be a new January event that does not change the December 31 amounts, but needs to be disclosed to the readers of the December 31 financial statements.

An example of the first situation might be that a customer owes Jay Company $200,000 on December 31 and Jay Company assumed that the customer was financially sound. As a result Jay Company did not provide any allowance for the customer's account being uncollectible. Then on January 28, the customer filed for bankruptcy and Jay Company learns that none of the $200,000 receivable will be collected. If the customer's financial condition on December 31 was already in bankruptcy condition, Jay Company will need to adjust its December 31 balance sheet and its income statement for the year 2020 for this $200,000 of bad debts expense.

An example of the second situation might be a loss arising from a catastrophe occurring on January 16, 2021. The amounts reported as of December 31, 2020 will not be adjusted since those amounts were correct as of December 31. However, the readers of the December 31 balance sheet and the 2020 income statement should be informed through a disclosure that something significant has occurred to the company's financial position since December 31.

The events after the balance sheet date are often referred to as subsequent events or post balance sheet events.

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