What is an Accounting Period?
An accounting period is the period of time covered by a financial statement or set of financial statements. For example, when people get statements from the bank, the statement often says something like “accounting period: 5/31-6/31” so that the customer understands which period the statement concerns. Accounting periods can be of a variety of lengths, and they are used in a number of different contexts.
A classic example of an accounting period is a calendar year. The calendar year is used as an accounting period for the purposes of taxation in many nations. Statements from this period are used to determine tax liability, balancing income over various tax deductions which reduce liability. People may also use the fiscal year, depending on how their accounting systems are organized, as an accounting period, especially when judging financial health as part of an audit.
Accounting periods can also include the quarter, the month, or smaller units of time, like an week. These periods are often used for internal accounting, the purpose of which is to monitor financial health and watch out for problems. In these cases, the internal accounts may only be viewed by a limited number of people. External accounts, such as those which publicly traded companies must file by law in the interests of full disclosure, are often filed quarterly and yearly.
Accounting periods are used on profit and loss statements, statements of account, and many other types of financial records. These documents reveal a variety of financial activities which took place during the accounting period. For example, a bank statement will show deposits, withdrawals, fees, and interest earned on the account. The bank may also send out an annual statement which includes all financial activity for the year, which can be checked against monthly statements for accuracy.
Financial documents usually disclose the accounting period somewhere near the topic of the document, because this information is important. Readers need to know about the time frame which surrounds the document they are looking at, and they may also need to know specifically when the document was generated. This also allows people to compare accounting periods to judge financial health; a restaurant, for example, might want to compare and contrast third quarter profits for different years for the purpose of seeing whether or not the business is growing and thriving as intended, and to arrive at an estimate of the establishment's growth rate.
When it comes to saving for retirement, I think the best way to look at your progress is on a quarterly basis.
Most mutual funds and other investment vehicles send out their reports every quarter. To make things easier on yourself, you should follow this same system as well.
Every quarter, keep track of how much you contributed to your retirement plan, the rate of return during that quarter, and your balance in the account. This will allow you to see how the account is performing over time.
My wife and I account for our retirement savings in this way, and it has really helped us to track our progress.
@blackDagger - I think the best way for you to manage your household expenses is to break your accounting periods into months. Since your household income and bills come in on a month to month basis, it is easiest for you to arrange your budget as such. That way, you can see clearly how much your family is actually taking home after all bills are paid.
My family does our budget this way, and it has made it a lot easier to save for retirement, vacations, and other things.
Hope this helps to relieve some headaches.
Is it best to arrange one's household budget into monthly accounting periods and then in quarterly ones as well? I have been trying to get our budget in order, and I will tell you what, it is a mess! And it is not easy, either.
I am trying to keep up with everything that we owe from month to month since my husband is paid one per month, and he pays all of the bills. What I make with my home business does all of the other stuff, and I manage it as it comes in. (It's amazing that I'm good with business accounting but not my own personal money.)
But then, I thought it would be a good idea to see where we are each quarter of the year as well. Am I overthinking this? I think that maybe I am, and boy, let me tell you. It is giving me one huge tension headache!
We recently went to a church business meeting (I forget the technical name for it) where everyone discusses and agrees on the budget and different issues involving the church and its members. I had never been to one of these at this church before, but I was very impressed with the way that things went.
One thing that absolutely blew my mind when looking at the given accounting period was how little our pastor was paid! The church secretary had every single cent spent by our church for the last quarter laid out for the whole world to see, and I was amazed. If only my own checkbook was so well cared for! And she doesn't even use accounting software!
Regardless, the pastor that we have is truly one of those that when he is called on he is there, lickety split. He is truly a man called of God, I would say, and apparently he’s doing it for practically nothing!
A view of our accounting period made me stop and appreciate what a man who believes in what he’s doing will do from the goodness of his heart and not what is being put in his pockets.
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