What is Accounting Period?
Period for which a firm prepares its internal or external accounts; the period covered by the financial statements. For internal accounts, it may be a month or a quarter; for external accounts it is normally a period of 12 months.
The time span in which certain financial events took place. The accounting period is generally a quarter or a year and reflects all of the financial activity that occurred during that time. However, it should be noted that even though accounting periods tend to be generically similar and encompass a like amount of time. The start and end dates of those time periods can be drastically different. Not all companies begin their fiscal year in January. Likewise, not every final quarter ends in December.
While accounting periods vary in terms of reporting dates, they must be consistent. If one accounting period ends on June 30, the next must begin on July 1. From an investing standpoint, the accounting period is important because it lets potential shareholders compare apples to apples and adjust for time-sensitive data. For example, if one is aware that June is traditionally a good month for Acme Widgets, a June sales decline might be viewed as a bad omen. Similarly, a sales increase might be downgraded or at least compared to last June’s financial statements to see whether it is significant.