Accounting period

What it means

The accounting period is the span for which an entity keeps its books and draws up financial statements. It is usually the calendar year, but it can be a financial year of twelve consecutive months.

It is not the same as the tax period for income tax, which normally coincides with it, and certainly not the VAT period, which is either a month or a quarter.

A new company’s first accounting period does not start on New Year’s Day but on the day the company comes into existence, and it ends on the last day of the calendar or financial year. A shorter period also arises on entering liquidation or bankruptcy: the current period ends the day before and the next one starts on the day of entry.

How it works in practice

The books are opened at the start of the period and closed at the end, with the statements drawn up as at the last day. The period also decides which year a cost or a revenue belongs to.

A switch to a financial year is notified to the tax office, and the conditions sit in the Accounting Act. The transitional period between the old and the new year is shorter or longer than twelve months.

A financial year is chosen mostly by seasonal businesses, such as a ski rental or a supplier of school goods. The period then ends in quieter months, stock is low, and the stocktake and the year-end close are done without a rush in the busiest part of the season.

What to watch out for

A document for the old year that arrives after the books are closed can no longer be posted into it. The cost lands in the next year, where it does not belong on the substance, and the tax base is wrong in both years at once.

With a financial year, the deadline for the tax return and for filing the statements runs from the end of that year, not from 31 December. Anyone who follows the calendar like other companies files and pays late, and the tax office charges both a penalty and late payment interest.