What is an accounting period?

Definition

An accounting period is the span of time a set of financial statements covers. It has a first date and a last date, and every posting in that file is judged against those dates.

On the books, this is the window, not the work of finishing the books. June means June 1 through June 30, whether the statements are printed on July 3 or July 10.

Where it shows up

Balance Sheet: Related to the date the statement is prepared as of.

P&L: Located as the date range the statement covers.

Cash flow: Located as the date range the statement covers.

See also: Fiscal Year · Month-End Close · Cutoff

The Balance Sheet is dated as of the last day of the period. It shows what the cafe owns and owes on June 30, not the activity between June 1 and June 30.

The Income Statement covers the whole span. June sales and June wages belong on the June P&L because they occurred inside those dates.

The Statement of Cash Flows uses the same span. Cash in and cash out are grouped by whether they happened during the period, not by when someone later printed the report.

A Financial Statement Package labels every page with that window. If the header says June, readers should expect June 1 through June 30.

How it works

Someone chooses the length. Many small businesses use a calendar month, while others use a quarter or a full year.

The first day of the period is when beginning balances apply. The last day is when ending balances are measured.

Activity is assigned by date, not by the day you sit down to type. A June 29 coffee sale belongs in June even if it is entered on July 2.

Posting a journal entry into the general ledger uses that date. The debit and credit land in whichever period the date belongs to.

A Trial Balance for June includes only accounts as of June 30, after June dates have been posted. A July invoice dated July 1 does not belong on that listing.

Income and expense accumulate inside the period. At year end, closing entries clear those accounts so the next year's first period can start clean.

The period is not the same thing as the fiscal year. A fiscal year is the twelve-month cycle the business uses for annual reporting, and it contains many shorter periods.

The period is also not the close. The close is the work of finishing the books after the last date has passed.

Cutoff is the rule that a transaction lands in the period in which it actually occurred. Period lock is the system switch that stops further posting to those dates.

Those are neighboring ideas. This page is only the span itself.

Example

A cafe keeps June books that cover June 1 through June 30. A latte sold on June 30 belongs in June, even if the owner records it the next morning.

A bean invoice dated July 1 belongs in July. Putting it in June would make June's expenses too high and July's too low.

On June 30 the Balance Sheet reports the cafe's cash, beans on the shelf, and unpaid bills as of that night. The June Income Statement reports June sales and June wages for the thirty days in between.

If the owner later reprints June after a late correction, the period has not changed. It is still June 1 through June 30; only the figures inside that window were updated.

Common mix-ups

An accounting period is not a fiscal year. The fiscal year is the twelve-month cycle used for annual reporting.

June is one period inside that year. Twelve monthly periods usually make up the year, unless the business reports on quarters instead.

An accounting period is not the month-end close. The close is the list of tasks that get statements issued after the last date.

The period is the dates those statements cover. You can close slowly or quickly; the span is still June 1 through June 30.

An accounting period is not cutoff. Cutoff is the rule that keeps June activity in June.

The period is the window the rule is applied to. Without a defined span, cutoff has nowhere to land.

Related terms

• Fiscal Year: The twelve-month cycle a business uses for annual reporting.
• Month-End Close: The monthly version of the close, ending in issued financial statements.
• Cutoff: The rule that transactions land in the period in which they actually occurred.
• Period Lock: Closing a period in the system so no further entries can be posted to it.
• Posting: Recording a journal entry into the general ledger accounts.
• Income Statement: A statement showing revenue earned and expenses incurred over a period, ending in net income.
• Beginning Balance: An account's balance at the start of the reporting period.
• Close Calendar: The dated schedule showing when each close task is due and who owns it.