Accounting Period

What Is an Accounting Period?

An accounting period is a laid out scope of time during which accounting capabilities are performed, aggregated, and examined including a calendar year or fiscal year. The accounting period is helpful in investing since potential shareholders dissect an organization's performance through its financial statements that depend on a fixed accounting period.

How an Accounting Period Works

There are commonly numerous accounting periods at present active at some random point in time. For instance, an entity might be closing the financial records for the long stretch of June. This demonstrates the accounting period is the month (June), albeit the entity may likewise wish to aggregate accounting data by quarter (April through June), half (January through June), and a whole calendar year.

Accounting Period Types

A calendar year with respect to accounting periods shows an entity starts collecting accounting records on the main day of January and in this way stops the accumulation of data on the last day of December. This annual accounting period impersonates a fundamental year calendar period.

An entity may likewise choose for report financial data using a fiscal year. A fiscal year with no obvious end goal in mind sets the beginning of the accounting period to any date, and financial data is accumulated for one year from this date. For instance, a fiscal year starting April 1 would end on March 31 of the next year.

Financial statements cover accounting periods, for example, the income statement and balance sheet. The income statement spreads out the accounting period in the header, for example, "...for the year ended Dec. 31, 2019." Meanwhile, balance sheets cover a point in time, for example the finish of the accounting period.

Requirements for Accounting Periods

Consistency

Accounting periods are laid out for reporting and analysis purposes. In theory, an entity wishes to experience consistency in growth across accounting periods to display stability and an outlook of long-term profitability. The method of accounting that upholds this theory is the accrual method of accounting.

The accrual method of accounting requires an accounting entry to be made when an economic event happens no matter what the timing of the cash element in the event. For instance, the accrual method of accounting requires the depreciation of a fixed asset over the life of the asset. This recognition of an expense over various accounting periods empowers relative equivalence across this period rather than a complete reporting of expenses when the thing was paid for.

Matching Principle

A primary accounting rule connecting with the utilization of an accounting period is the matching principle. The matching principle expects that expenses are reported in the accounting period in which the expense was incurred and all associated revenue earned because of that expense is reported in a similar accounting period. For instance, the period for which the cost of goods sold is reported will be a similar period in which the revenue is reported for similar goods.

The matching principle directs that financial data reported in one accounting period ought to be essentially as complete as could really be expected and all financial data ought not be spread across different accounting periods.

Features

• Accounting periods are made for reporting and investigating purposes, and the accrual method of accounting considers steady reporting.
• An accounting period is a period of time that covers certain accounting capabilities, which can be either a calendar or fiscal year, yet additionally seven days, month, or quarter, and so forth.
• The matching principle states that expenses ought to be reported in the accounting period in which the expense was incurred, and all revenue earned because of that expense be reported in a similar accounting period.