key term - Accounting period

Definition

An accounting period is a specific time frame for which financial statements are prepared. It can be a month, quarter, or year and is essential for reporting financial performance accurately.

5 Must Know Facts For Your Next Test

1. The accounting period determines when revenues and expenses are recognized.
2. Adjusting entries are made at the end of an accounting period to update account balances.
3. Common accounting periods include monthly, quarterly, and annually.
4. Accrual accounting requires that transactions be recorded in the period they occur, not when cash changes hands.
5. Fiscal years do not always align with calendar years; companies choose their fiscal year based on business cycles.

Review Questions

Related terms

Accrual Accounting:

A method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Fiscal Year:

A one-year period that companies use for financial reporting and budgeting, which may not coincide with the calendar year.

Adjusting Entries:

Journal entries made at the end of an accounting period to allocate income and expenditures to the correct periods.