An accounting period is a period that contains all the financial transactions for an entity. Generally, it is 12 months. The accounting period is used to prepare financial statements and calculate various financial ratios. It is also used to assess the performance of the entity over some time.
The accounting period is important in financial reporting because it provides a way to measure the entity's financial activity over a specific period. This information is useful in making informed decisions about the entity's future.
The accounting period can be divided into two types: calendar year and fiscal year. Calendar year accounting periods are based on the Gregorian calendar, while fiscal year accounting periods are based on the entity's financial year.
- Calendar Year Accounting Periods
A calendar year accounting period covers 12 months from January 1st to December 31st. This type of accounting period is used by most entities, as it simplifies the recording and reporting of financial transactions.
- Fiscal Year Accounting Periods
A fiscal year accounting period is based on the entity's financial year, which can be any 12 months. This type of accounting period is used by entities that have a non-calendar year-end, such as businesses that operate on a fiscal-year basis.