WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All In One Bundle
  • Login
Home » Accounting Tutorials » Accounting Fundamentals » Accounting Period

Accounting Period

Accounting Period Definition

Accounting Period refers to the fixed time period during which all accounting transactions are recorded for and financial statements are compiled to be presented to the investors, so that they can track and compare the overall performance of the company for each time period.

Types of Accounting Period

They are of two types –

Accounting Period Types

  • Calendar Year: For those companies which follow the calendar year, it starts from 1st January and ends on 31st December of the same year.
  • Fiscal Year: For those companies which follow the fiscal year, it starts from the first day of any month other than January.

How does it Work?

The accounting period serves the purpose of analysis and comparison of the financial data of the company for two different periods. When two different periods are referred to, analysis can be made regarding various financial parameters that suggest the growth or the downfall of the company. It serves as a reference to such a report and is very useful for the stakeholders.

Accounting Period

Examples of Accounting Period Concept

Example #1

A company record their transactions from 1st January to 31st December every year and close their financials after that. Here, the accounting period is of one year, i.e., 1st January to 31st December.

However, not all companies need to follow one year.

Example #2

A company record their transactions from 1st January to 30th June every year and close their books of accounts after that. Here, the accounting period is that of half-year, i.e., 1st January to 30th June and the next period shall be from 1st July to 31st December.

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course

Advantages

The following are advantages and benefits to the users of the financial statements:

  • It is useful in representing the financial position of the company for a fixed interval.
  • It is useful in comparison of financial data of two or more periods.
  • This concept helps the company in setting a formal period over which books are required to be closed.
  • The concept is useful for investors as they can refer to the trends of the financial results over several intervals.

Disadvantages

  • It may not be useful if the concept of matching principle is not followed.
  • Comparing the results of one period to another does not take into account the factual reasons that led to the differences.
  • If the tax period is different, then two separate accounts will be required to be maintained.

Importance

For the financial results of the company to be ascertained, it is crucial to fix “regular intervals” for which accounting transactions shall be recorded, and results shall be compiled. The results of each interval will represent the financial result of the company in each such interval. Thus, one by one comparison is possible only in respect of the accounting period. Whether a company has incurred losses or profits is a vague question if any fixed interval is not allotted to it. Thus, the concept gives meaning to financial statements and help the investors in a proper analysis of financial results.

Accounting Period vs. Financial Year

The accounting period has no fixed length, and it can be of any length, such as one year or less and maybe more than one year. It has two types, namely calendar year and fiscal year. Accordingly, it can start from the first date of any month.

However, a financial year refers to the period starting of one full year (for example 1st April and ending on 31st March of next year). Thus, the total duration of the financial year is one year, and the starting and ending of financial is fixed and cannot be changed, unlike the accounting period where the period can be shortened or extended from one year.

Conclusion

A company shall choose its accounting period wisely and not change it unless the conditions arise such that such change becomes necessary. All the accounting transactions relating to shall be recorded in the same period, and whenever required, mandatory accounting provisions shall be made so that the matching principle is not violated.

Recommended Articles

This has been a guide to Accounting Period and its definition. Here we discuss the concept of accounting period along with its types, how does it work, along with examples, advantages, disadvantages, and differences with the financial year. You can learn more from the following articles –

  • Fiscal Year-End Meaning
  • Fiscal Quarter
  • Calendar Year vs Fiscal Year
  • Reporting Period
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More