Accounting Period

Definition

An accounting period is the specific timeframe for which a business prepares its financial accounts. It can vary based on the type of financial reporting and the operational requirements of the business. Key distinctions include the following:

1. Financial Period (Period of Account):

   • Internal: Management accounts may be produced monthly or quarterly to aid internal decision-making.
   • External: Financial statements are typically prepared for a 12-month period, referred to as the reporting period. Exceptions occur when a business is newly established, ceases operations, or changes its accounting year-end.

2. Chargeable Accounting Period (Corporation Tax):

   • This is the period for which a corporation tax assessment is raised. It cannot exceed 12 months in length.
   • This period starts when a company commences trading or immediately after a prior accounting period ends.
   • It ends at the earliest of:
     • 12 months from the start date,
     • The end of the company’s financial period,
     • The start of liquidation,
     • The cessation of the company’s UK residency.

Examples

1. New Business: XYZ Corp starts trading on March 1, 2022. Its first accounting period could end on February 28, 2023, forming a 12-month financial period.
2. Established Business Change: If ABC Ltd changes its year-end from December 31 to March 31, it might have a short period from January 1, 2022, to March 31, 2022, followed by the next annual period ending March 31, 2023.
3. Corporation Tax: A company’s accounting period for corporation tax might start on April 1, 2022, and end on March 31, 2023.

Frequently Asked Questions (FAQ)

What is the difference between an accounting period and a reporting period?

An accounting period refers to the timeframe over which financial activities are recorded, while a reporting period is specifically the period for which financial statements are prepared and issued externally.

Can an accounting period be less than 12 months?

Yes, an accounting period can be shorter than 12 months for reasons such as a business starting or terminating operations or changing its year-end date.

How is the start date of an accounting period determined?

The start date is typically when a company begins trading or immediately after the previous accounting period ends.

What happens if a company changes its accounting year-end?

The company might have a transitional accounting period shorter than 12 months placed between the old year-end and the new year-end date.

What triggers the end of an accounting period?

An accounting period ends the earliest of 12 months from the start, the end of the financial period, the start of liquidation, or the cessation of the company’s UK residency.

Related Terms

• Accounting Reference Date (ARD): The end date of a company’s annual accounting period which aligns with its financial year-end.
• Corporation Tax: A tax imposed on the net income of a company.
• Financial Statements: Reports summarizing a company’s financial performance and position over a reporting period.
• Management Accounts: Financial reports produced frequently (e.g., monthly, quarterly) to aid internal management in decision-making.
• Reporting Period: The specific timeframe for which financial statements are prepared, usually aligned with the accounting period.

Online References

• Accounting Period Definition on Investopedia
• Corporation Tax in the UK - HMRC
• Financial Statements Guide - IFRS

Suggested Books for Further Studies

1. “Financial Accounting Theory and Analysis: Text and Cases” by Richard G. Schroeder, Myrtle W. Clark, and Jack M. Cathey
2. “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
3. “Accounting for Non-Accountants” by Wayne Label

Accounting Basics: “Accounting Period” Fundamentals Quiz

By understanding the fundamentals of the accounting period, stakeholders can better analyze a company’s financial health and make informed decisions. Keep exploring to deepen your accounting expertise!