What is an accounting period?

An accounting period is the period of time covered by a financial statement or set of financial statements. For example, when people receive bank statements, the statement usually says something like "accounting period: 05/31-06/31" so the customer understands what period the statement refers to. Accounting periods can be of various lengths and are used in many different contexts.

A classic example of an accounting period is a calendar year. The calendar year is used as an accounting period for tax purposes in many nations. Returns from this period are used to determine tax liability, balancing income over various tax deductions that reduce liability. People can 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, month, or smaller time units such as a week. These periods are often used for internal accounting, the purpose of which is to monitor financial health and keep an eye on problems. In such cases, internal accounts can only be viewed by a limited number of people. External accounts, such as those that public companies are required by law to file for full disclosure purposes, are generally filed quarterly and annually.

Accounting periods are used in profit and loss statements, account statements, and many other types of financial records. These documents reveal a variety of financial activities that 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 an annual statement that includes all financial activities for the year, which can be checked against the monthly statements to see if they are correct.

Financial documents usually disclose the accounting period somewhere close to the subject of the document, because that information is important. Readers need to know about the time period around the document they are viewing, and they may also need to know specifically when the document was generated. This also allows people to compare accounting periods to assess financial health; A restaurant, for example, may want to compare and contrast third-quarter earnings from different years to see if the business is growing and prospering as anticipated and to come up with an estimate of the establishment's growth rate.