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An accounting period is a period of time covered by financial statements, such as a calendar or fiscal year, and can be used for tax purposes or to monitor financial health. Different posting periods, such as quarters or months, are used for internal accounting, while external accounts are filed quarterly and annually. The accounting period is important information included in financial documents to allow for comparison and judgment of financial health.
An accounting period is the period of time covered by a financial statement or set of financial statements. For example, when people receive statements from the bank, the statement often says something like “accounting period: 5/31-6/31” so the customer understands what period the statement is referring to. Accounting periods can be of a variety of lengths and are used in a number of 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 countries. Returns from this period are used to determine tax liability, balancing income over various tax deductions that reduce liability. People may 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.
Posting periods can also include the quarter, month, or smaller units of time, 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 out for problems. In these cases, internal accounts can only be seen by a limited number of people. External accounts, such as those that publicly traded companies are required to file by law in the interest of full disclosure, are often filed quarterly and annually.
Accounting periods are used in profit and loss statements, bank 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 activity for the year, which can be checked against the monthly statements for accuracy.
Financial documents usually disclose the accounting period somewhere near the subject of the document, because this information is important. Readers need to know about the time frame surrounding 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 judge financial health; A restaurant, for example, might want to compare and contrast third-quarter earnings for different years to see if the business is growing and prospering as anticipated, and to arrive at an estimate of the establishment’s growth rate.
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