An accounting period is the period of time covered by a financial statement or set of financial statements. For example, when people get statements from the bank, the statement often says something like “accounting period: 5/31-6/31” so that the customer understands which period the statement concerns. Accounting periods can be of a variety of lengths, and they are used in a number of different contexts.
A classic example of an accounting period is a calendar year. The calendar year is used as an accounting period for the purposes of taxation in many nations. Statements from this period are used to determine tax liability, balancing income over various tax deductions which reduce liability. People may also use the fiscal year, depending on how their accounting systems are organized, as an accounting period, especially when judging financial health as part of an audit.
Accounting periods can also include the quarter, the month, or smaller units of time, like an week. These periods are often used for internal accounting, the purpose of which is to monitor financial health and watch out for problems. In these cases, the internal accounts may only be viewed by a limited number of people. External accounts, such as those which publicly traded companies must file by law in the interests of full disclosure, are often filed quarterly and yearly.
Accounting periods are used on profit and loss statements, statements of account, and many other types of financial records. These documents reveal a variety of financial activities which took place during the accounting period. For example, a bank statement will show deposits, withdrawals, fees, and interest earned on the account. The bank may also send out an annual statement which includes all financial activity for the year, which can be checked against monthly statements for accuracy.
Financial documents usually disclose the accounting period somewhere near the topic of the document, because this information is important. Readers need to know about the time frame which surrounds the document they are looking at, and they may also need to know specifically when the document was generated. This also allows people to compare accounting periods to judge financial health; a restaurant, for example, might want to compare and contrast third quarter profits for different years for the purpose of seeing whether or not the business is growing and thriving as intended, and to arrive at an estimate of the establishment's growth rate.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.