Accounting period

What it means

The period of time over which financial performance is measured and reported, commonly a year.

Example

An income statement reports profit for one accounting period.

Why it matters

Matching income and expenses to the correct accounting period is why accruals and prepayments exist.

In practice

The accounting period is the time span a set of accounts covers, and it appears in the headings you write. An income statement is headed "for the year (or period) ended...", because profit only makes sense over a stretch of time. The statement of financial position is headed "as at..." a single date, the closing day of that same period. A consistent period makes one year comparable with the next.

Suppose a shop opens on 1 January and rules off its books on 31 December. That twelve months is its accounting period. Every revenue earned and expense incurred in it must be recorded in it, whenever the cash moves. If rent of RM1,200 covering January of the following year is paid in December, RM1,200 is a prepayment and moves into the next period.

The accounting period works hand in hand with the matching concept, but they are not the same. The period sets the boundary of time. Matching decides which revenues and expenses fall inside it. A period need not be a calendar year. A new business might prepare its first accounts over fifteen months.

If year-end cut-off questions trip you up, one of our teachers can work through the dates with you in past-paper examples. Book a trial class.

Related terms

• Financial year
• Matching concept

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 1.1 The purpose of accounting (page 11).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.