accounting period concept definition: Accounting Period Concept Principle, Profit, Loss, & Statement


These elements are tracked and recorded in documents including balance sheets, income statements, and cash flow statements. When these transactions are recorded on the basis of a specific period, then this concept is known as the accounting period concept. To follow this concept, it is important for the organization to prepare its financial statements, such as income statements and position statements at regular intervals.

The accounting period principle allows companies to follow a weekly, monthly, quarterly, or annual form of bookkeeping. Monthly accounting periods are the most common forms of accounting for firms as it gives them enough data to compare their growth trajectory, sales, inflows, and outflows in detail. However, the beginning of an accounting period can depend on the jurisdiction of the business. Introduction to accounting frequently identifies assets, liabilities, and capital as the field’s three fundamental concepts.

For them, the income of their firm depends upon the collection of revenue in cash. It is convenient for them and on the same basis, they pay their Taxes. In some of the ERP tools there are more than 12 accounting periods in a financial year.

  • Debits are accounting entries that function to increase assets or decrease liabilities.
  • In other words, accounting concepts are generally accepted accounting principles, which form the fundamental basis of consistently preparing the universal form of financial statements.
  • Receipts serve as proof that the transaction took place and allow those transactions to be processed for tax purposes.
  • When retained earnings are positive, they increase the organization’s equity.

13-week fiscal quarters such as the 13 weeks ending on the last Saturday in April, etc. The Internal Revenue Service allows taxpayers to either use the calendar-year taxpayers or fiscal-year for tax reporting. For example, machinery or equipment purchased would be noted at its purchased price rather than its current price, even if the machinery is very old, and is not worth the purchased price.

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A few firms compile financial information in four-week increments, so that they have 13 accounting periods per year. Whatever accounting period is used should be applied consistently over time. Basic accounting concepts used in the business world cover revenues, expenses, assets, and liabilities.


To that end, we have built a network of industry professionals across higher education to review our content and ensure we are providing the most helpful information to our readers. This concept helps in forecasting the future prospects of a business based on the reports. Businesses keep track of transactions based on the purchase price. That means the organizations will continue to operate year after year and has no plans to close the business in the future.

What Types of Accounting Periods Are There?

She earned a bachelor of science in finance and accounting from New York University. Matos began her career at Ernst & Young, where she audited a diverse set of companies, primarily in consumer products and media and entertainment. She has worked in private industry as an accountant for law firms and for ITOCHU Corporation, an international conglomerate that manages over 20 subsidiaries and affiliates. Matos stays up to date on changes in the accounting industry through educational courses. Overhead (O/H) costs describe expenses necessary to sustain business operations that do not directly contribute to a company’s products or services.

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Integrity Network members typically work full time in their industry profession and review content for as a side project. All Integrity Network members are paid members of the Red Ventures Education Integrity Network. James M. Tobin is a writer, researcher, and editor specializing in student reference and academic research materials related to technology, business, finance, law, and the humanities. He began his professional career in editorial services in 2001 and… Jacob has crafted articles covering a variety of tax and finance topics, including resolution strategy, financial planning, and more.

Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as a business expense. Thus, the accounting transactions are recorded in the books of accounts from the organization’s point of view and not the person owning the business. You can also think of an accounting period as the amount of time it takes to complete oneaccounting 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 withreversing entriesand closes the books at the end of a period withyear-end closing entries. Then financial statements are prepared and the next accounting period begins.

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States that the entity needs to prepare and maintain its book of accounts on a prudent basis. Conservatism says that the entity has to provide for any expected losses or expenses; however, it does not recognize future revenue expected. The Accounting Period Concept states that accounting activities period should be divided into smaller intervals so that performance of the business can be measured. In order to report the performance of the business to outsiders, one year is the usual accounting period. What are your thoughts about the importance of the accounting period in financial reporting and accounts-related activities? So, if a firm used the fiscal year in the previous year as a means to represent its financial statement, the header might read “for the year ended on March 31st, 2021”.


A good accountant must have a complete grasp of all the important accounting concepts. If the base is not good, then the bookkeeping would also be not good. The accountants use this concept when there is a significant concern regarding the liquidation of the assets. The going concern concept is applied when the chances are high that the company would be liquidated in the next two or four quarters. accounting is the process of recording, summarizing and reporting the myriad of a company’s transactions to provide an accurate picture of its financial position. An entity may also elect to report financial data through the use of a fiscal year. A fiscal year arbitrarily sets the beginning of the accounting period to any date, and financial data is accumulated for one year from this date. For example, a fiscal year starting April 1 would end on March 31 of the following year. The federal government has a fiscal year that runs from October 1 to September 30, while many nonprofits have a fiscal year that runs from July 1 to June 30.

Accounting Period Concept

accounting period concept definition periods offer consistency as it lets business check their growth across different accounting periods. The accrual method of accounting also works upon the accounting period, plus the matching principle is also based upon them. The cycle begins with the financial entries being reversed and closing the books of the previous cycle. To complete this cycle, businesses will have to prepare the financial statements before the next accounting period commences. A business firm gathers and keeps track of its financial transactions through the course of an accounting period.


Provisions are estimates of future related probable losses from past and present events calculated by following predefined regulatory guidelines by banks and financial institutions. Janet can also prepare financial information more frequently than once a year. For example, she could prepare it monthly, quarterly or semi-annually. She would likely need financial information on a monthly basis to run her business effectively. Certified public accountants and management accountants are two of the profession’s most common specializations. Auditors and forensic accountants are another important branch of the field.

When comparing outcomes from one period to the next, the factual causes for the differences are ignored. If the tax period is different, two separate accounts must be kept. Generally, the accounting period follows this Gregorian calendar year which consists of twelve months.

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The results of each interval will represent the company’s financial result in each such interval. Thus, the one-by-one comparison is possible only regarding the accounting period. Whether a company has incurred losses or profits is a vague question if any fixed interval is not allotted.

The fact that financial statements are prepared according to accounting periods necessitates certain adjustments. For example, when a car is purchased, its cost must be apportioned over the various accounting periods in which it will be used. Different accounting activities like making an income statement, balance sheet, monthly accounting, annual accounting, etc are channelized as per the given accounting period.

They are large so they have a lot of resources to get things done in a timely way. Finance Pal does all our accounting and bookkeeping services from managing our Xero accounting software account to reconciling bank statements to doing our tax returns. By the end of the article, you should have a good understanding of nine key accounting concepts. Please feel free to leave a comment below if you have any questions about accounting concepts. According to this concept, Businesses will only record the transactions in the accounts book which are measurable in terms of money.