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An accounting period is the period of time covered by financial statements. However, the exact definition and length vary according to who the statements are being prepared for, trading status and business life cycle.
What is an Accounting Period?
All financial information needs a start date and an end date. Otherwise, transactions will be logged continual basis and performance never assessed.
Businesses have an accounting period which is the start date and end date on which they report their figures.
Usually, it is 12 months. But there are circumstances where it can be more or less than 12 months for example:
- If a business has just started trading or;
- When a business is closing down.
If You Are Self-Employed
When you are self-employed you can choose to keep your accounts for any period you like.
But when it comes to completing your self-assessment tax return it can be easier to select a period of accounts that matches the tax year (6th April to 5th April each year).
If You Have a Limited Company
If you have a Limited Company your first period will automatically be the 12 months from the end of the month when your Limited Company was formed and therefore always be slightly longer than 12 months.
For example: you form your Company on the 3 June 2017, therefore your first accounting period will be 3 June 2017 to 30 June 2018 and then be the 30 June thereafter.
You can choose to change your Limited Company period at any time online but there are rules you need to follow if you wish to do this.
The period 1 April to 31 March is commonly used for this reason. But you can choose any period which suits you and you can change it if the need arises.
Accounting Period for Corporation Tax
An accounting period for corporation tax is usually the same as the period used to complete financial statements.
However, a corporation tax period can never be more than 12 months long. So if a Limited Company is newly formed and its financial period is more than 12 months long more than one corporation tax return will need to be filed.
What is the Name of an Accounting Period that is One Year Long?
An accounting period that is one year long exactly is commonly referred to as an “accounting year”.
What Happens at the End of An Accounting Period?
At the end of the period, the books of the Business are closed. That way business owners and managers can review performance over the period and produce financial statements.
Financial statements usually include a profit and loss account which shows how the company has performed during the period and a balance sheet which is a snapshot of the businesses assets and liabilities at the period end date.
Can An Accounting Period Be Less than 6 Months?
Yes. If a Limited Company is newly formed or someone has recently become self-employed but needs to submit a tax return, then the accounting period can be less than 6 months.
For example, you go self-employed on 1 March 2019 and choose a reporting date of the 31 March each year for your tax return.
Your first period reported on the tax return for 2018/2019 will be one month long.