Definition: An accounting period, also called a reporting period, is the amount of time covered by the financial statements . In other words, it’s the time frame of activities that are summarized in the financials. Most general-purpose financial statements include business activities over the course of a year, but some interim statements are created for quarters and mid-year reporting requirements making their reporting periods less than on year.
What Does Accounting Period Mean?
You can also think of an accounting period as the amount of time it takes to complete one accounting cycle . Since the purpose of a cycle is to record transactions over a period of time and report them in the form of financials, it only makes sense the one cycle equals one period. The accounting cycle opens the books at the beginning of each period with reversing entries and closes the books at the end of a period with year-end closing entries . Then financial statements are prepared and the next accounting period begins.
Most companies use one year as their default period, but this doesn’t have to be one calendar year. Many companies with odd fiscal year-ends open and close their accounting periods in the middle of a calendar year. For example, a company with a June fiscal year would start its period on June 1 and end it on May 31 of the following year.
An accounting period can really be any length of time, however. It’s just that one year is a natural period. The time frame isn’t what defines a reporting period. The issuance of financial statements and the time frame that the statements report in are what defines the length of the period.
For example, public companies that are required to issue quarterly financial statements have three month reporting periods. Traditional annual statements report on 12-month accounting periods. There is no standard set reporting period. It’s simply the length of time the financials cover.