Accounting Period Explained
Definition and Meaning
Business Encyclopedia, ISBN 978-1-929500-10-9. Revised 2014-03-10.
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
". . . 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. In other words, the balance sheet represents financial position at one point in time.The balance sheet title will be followed with phrase such as:
". . . at 30 September 2011.
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-.