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Accounting Period Explained
Definition and Meaning

Business Encyclopedia, ISBN 978-1-929500-10-9. Revised 2014-07-25.

The accounting cycle spans all stages of the accounting period, usually a fiscal quarter or year.  

Stages of the accounting cycle are carried out across an accounting period, usually a fiscal quarter or year. The period ends with publication of the period's financial statements.

The Accounting period (Reporting period) is the time period for which a company or organization reports financial performance and financial position. Normally the accounting period is defined with respect to the organization's fiscal year, Typically, four quarterly accounting periods correspond to the organization's fiscal quarters, and an annual accounting period covers the entire fiscal year.

Several of the primary financial accounting reports or financial statements are published shortly after the end of the accounting period, summarizing activity from the start to the end of the period. For companies in private industry, these reports include the income statement (or profit and loss statement), the statement of changes in financial position (or cash flow statement), and the statement of retained earnings. For government organizations, the report comparable to an income statement may be called a statement of operations, and for some non profit organizations it is called the statement of activities.

The accounting period in view is normally written on these financial statements immediately under the statement title, with a phrase such as...

". . . for the year ended 30 September 2011"

By contrast, the balance sheet (or statement of financial position), reports on the status of asset, liability, and equity accounts at one point in time, the end of the accounting period. The balance sheet title will be followed with phrase such as:

". . . at 30 September 2011"

Exhibit 1 below shows stagesof the accounting cycle that are completed in one accounting period.

Accounting period cycle covers the accounting period, including transactions entered in journals, posting transactions to ledgers, trial balances and corrections, and reporting of financial statements.

  Exhibit 1. The accounting cycle is completed in each accounting period. Transactions are entered into the journal when they occur, as the first step in the accounting cycle. Journal entries are psoted to a ledger as the second step. Entries are checked with a trial balance and corrected if necessary. The final step shown above is publication of financial statements. However, public companies must also complete the cycle by having reports audited and then filing them with securities authorities.

The accounting period is central to the application of the matching-concept in accounting (reporting revenues earned and the costs and expenses that brought them in the same period), and to accrual accounting, the practice of reporting revenues when earned and expenses when the obligation is incurred, rather than reporting them when cash actually flows.

Publicly held companies (companies that sell shares of stock to the public) are required to publish reports annually, for an accounting period that coincides with their fiscal year. In most countries, this is also the period  (the year) for which tax liabilities are calculated, summarized, and paid.

Many companies also publish financial reports for quarterly accounting periods (three-month periods), for the benefit of shareholders, potential investors, and their own management.

Note that the accounting period fiscal year need not coincide with the calendar year. When a financial statement refers to "FY 2011," for instance, the reference simply refers to the fiscal year ending sometime in calendar 2011. The US government fiscal year ends 30 September 30, the UK government fiscal year ends 31 March, while the Australian government  ends its fiscal year on 30 June. Among companies in private industry, Cisco Systems ends its fiscal year 31 July,  Siemens ends the fiscal year on 30 September, and Hewlett-Packard's fiscal year ends 31 October.

Nevertheless, a majority of companies worldwide (for example, Ericsson, Virgin Media, and IBM) end their fiscal year accounting periods when the calendar year ends, on 31 December.

By Marty Schmidt. Copyright © 2004-

 

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