What is the defination of accounting period or financial year
An accounting period, also known as a financial year or fiscal year, refers to the specific duration of time during which a business entity prepares its financial statements. It is typically a 12-month period, although it can be of a different length depending on the organization's requirements.
The accounting period typically aligns with the natural cycle of a business, which could be a calendar year (January 1 to December 31), a fiscal year (which may vary and start on any date), or an industry-specific cycle. The purpose of defining an accounting period is to provide a consistent time frame for reporting financial information and assessing the company's performance and financial condition.
Within the accounting period, various financial transactions and events are recorded, analyzed, and summarized to produce financial statements, including the income statement, balance sheet, and cash flow statement. These statements provide valuable insights into the entity's profitability, assets, liabilities, cash flows, and overall financial health.
The accounting period concept helps investors, creditors, analysts, and management evaluate the company's performance, plan budgets, make financial decisions, compare results with previous periods, and comply with legal and regulatory obligations regarding financial reporting.