The Importance of Accounting Periods

A bookkeeping period or accounting period is a customary range of time (12 to 18 months) which a business’s account records and procedures are performed, analyzed and aggregated (Shevlin & Thornock, 2015). An accounting epoch includes both the fiscal year and a calendar year/ tax year calculations.  The accounting period is important to an organization given that at this period potential shareholders analyze a business’s performances through its financial records which are based on permanent accounting period (Shevlin & Thornock, 2015). Currently, there are various accounting periods which are active at any given period.

A calendar year

            A calendar year in admiration to accounting epoch indicates that an organization or company begins aggregating bookkeeping statements as early as January (1st) and stops the accretion of data on the last day of December (31st) (Shevlin & Thornock, 2015). An annual accounting period, normally imitates a basic twelve month calendar period.

Fiscal year

A fiscal year is an accounting phase composed of 365 days which do not automatically match up to the calendar year which begins on 1st of January (Shevlin & Thornock, 2015). There are two types of fiscal periods. The most prevalent is the 12 uninterrupted months ending on the last day of a month other than December (Shevlin & Thornock, 2015). A fiscal year beginning on April 1st will end on March 31st the following year. Nevertheless, a fiscal year can be classified by the number of weeks such as a 51- or- 52 week year.

Conclusion

Accounting periods are recognized to assist in analyzing and reporting a business’s financial records. A business can choose to either use a calendar year or fiscal year accounting period depending on the legal designation of the business.

Reference

Shevlin, T., & Thornock, J. (2015). Market (in) attention and the strategic scheduling and timing of earnings announcements. Journal of Accounting and Economics, 60(1), 36-55.