Accounting period refers to the time period for which accounting books are balanced and preparation of financial statements is done by business entities to evaluate their financial performance or for reporting to external parties/stakeholders. Every business depends on accounting period to prepare internal accounts for performance monitoring and external accounts for reporting purpose to external parties. The meaning of accounting period may depend on the nature of a business and its duration may depend on the frequency at which the firm wishes to evaluate its performance.
In general, the accounting period is one year. Many business entities, especially those which need financial performance for a period less than a year follow the accounting period of 3 months or 6 months. It means that these firms prepare financial statements at the end of every quarter or every half year. There are businesses that need to prepare their financial statements every month for internal accounting. For them, accounting period is one month. Definition of accounting period duration also changes for the firms engaged in fresh commodities, as they may carry out even weekly accounting periods.
International Financial Reporting Standards (IFRS) allows 52 weeks period, instead of one full year, as the accounting period. In other words, an accounting period may be as long as one week, four weeks, one month, 3 months, one year or 52 weeks.
(Source: efinancemanagement.com)
