Accounting period definition
/What is an Accounting Period?
An accounting period is the span of time covered by a set of financial statements. This period defines the time range over which business transactions are accumulated into financial statements. It is needed by investors so that they can compare the results of successive time periods. For internal financial reporting, an accounting period is generally considered to be one month. A few firms compile financial information in four-week increments, so that they have 13 accounting periods per year. Whatever accounting period is used should be applied consistently over time.
Examples of Accounting Periods
The following are examples of the different types of annual accounting periods that a business might use in its financial reporting:
Calendar year, which is from January 1 to December 31
Fiscal year, such as from February 1, 20X1 to January 31, 20X2
52-week fiscal year
The following are examples of the different types of quarterly accounting periods that a business might use in its financial reporting:
Calendar quarter, such as January 1 to March 31, or October 1 to December 31
Fiscal quarter, such as February 1 to April 30
13-week fiscal quarter
Fiscal Year vs. Calendar Year
If a set of financial statements covers the results of an entire year, then the accounting period is one year. If the accounting period is for a twelve month period ending on a date other than December 31, then the accounting period is called a fiscal year, as opposed to a calendar year. For example, a fiscal year ended June 30 spans the period from July 1 of the preceding year to June 30 of the current year. Ideally, the fiscal year should end on a date when business activity is at a low point, so that there are fewer assets and liabilities to audit.
Short Year
Yet another variation on the accounting period is when a business has just been started, so that its first accounting period may only span a few days. For example, if a business begins on January 17, its first monthly accounting period will only cover the period from January 17 to January 31. The same concept applies to a business that has been terminated. For example, if a business were to be shut down on January 10, its final monthly accounting period would only cover the period from January 1 to January 10.
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Public Company Accounting Periods
A publicly-held company must report to the Securities and Exchange Commission on a quarterly basis, so the accounting period for its financial reports to the SEC spans three months.
Financial Statements to Which the Accounting Period Applies
Technically, an accounting period only applies to the income statement and statement of cash flows, since the balance sheet reports information as of a specific date. Thus, if an entity reports on its results for January, the header of the income statement says "for the month ended January 31," while the header of the balance sheet states "as of January 31."