Term: ACCOUNTING PERIOD

The period of time over which the financial affairs of a company are being accounted for in the financial statements. The matching principle ensures that the incomes for the accounting period are off-set against the expenses for the same period in order to arrive at the profit or loss. The balance sheet shows the asset and liability position at the end of the accounting period. In terms of the Companies Act, companies are required to have an annual accounting period, but this may vary (i.e. be more or less than 12 months) if they have elected to change their financial year-end – usually because they have been the subject of a take-over and wish to align their financial year-end with that of their new parent company. For this reason, it is always important when considering a company’s financials to know when its financial year-end is and to make sure that you are looking at a 12-month period that is comparable to previous 12-month periods. When comparing companies you need to establish their financial year-ends. You may be comparing a company which has just produced good financial results with another which is just about to.

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