An accounting period, in bookkeeping, is the period with reference to which management accounts and financial statements are prepared.. What is the difference between Cost and Expense? What are the somekey criteria for an item, property, plant or equipment to be recognized as an asset? In accounting, we measure profitability for a period, such as a month or year, by comparing the revenues earned with the expenses incurred to produce these revenues. Few of the assumptions or concepts include: Going concern concept. It shows you how much you made (revenue) and how much you spent (expenses). Organizations use the same reporting periods from year to year, so that their financial statements can be compared to the ones produced for prior years. An accounting period is the period of time covered by a company's financial statements. The statement of cash flows shows the cash inflows and outflows for a company over a period of time. What are the four functions of inventory? What is the difference between Double Entry System and Single Entry System? The statement of cash flows shows the cash inflows and cash outflows from operating, investing, and financing activities. When we talk about financial statements, we often mean the general-purpose financial statements, the financial statements which a company prepares under some applicable financial reporting framework (such … Which HR Process involves setting qualifications and what employees will do? The income statement shows the performance of the business throughout each period, displaying sales revenueSales RevenueSales revenue is the income received by a company from its sales of goods or the provision of services. Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. The financial statement that reflects a company’s profitability is the income statement. Monthly accounting periods are common. What is true with respect to variable costs per unit? The time period covered is usually for a month, quarter, or year, though it is possible that partial periods may also be used. Common accounting periods for external financial statements include the calendar year (January 1 through December 31) and the calendar quarter (January 1 through March 31, April 1 through June 30, July 1 through September 30, October 1 through December 31). The length of accounting period to be used for the preparation of financial statements depends on the nature and requirement of each business as well as the need of the users of financial statements. ... How is the balance sheet linked to the other financial statements? a month or a year). As you study about the assets, liabilities, and stockholders’ equity contained in a balance sheet, you will understand why this financial statement provides information about the solvency of the business. The balance sheet is the same equation in an easier to read format. What can be done with a workflow field update action? Which one of the following financial statements does not cover a period of time? What is the difference between 403b and IRA? Remember in the transaction analysis, our final accounting equation was:   Assets $88,100 (Cash $66,800 + Accounts Receivable $5,000 + Supplies $500 + Prepaid Rent $1,800 + Equipment $5,500 + Truck $8,500) = Liabilities $200 + Equity $87,900 (Common Stock $30,000 + Net Income $57,900 from revenue of $60,000 –  salary expense $900 – utility expense $1,200). This is the most commonly-used of the financial statements , and is the most likely statement to be distributed within a business for management review. The balance sheet lists the assets, liabilities, and equity (including dollar amounts) of a business organization at a specific moment in time and proves the accounting equation. Some companies prepare financial statements monthly to keep a tight handle on the financial position of the firm. Unlike the balance sheet, the income statement covers a range of time, which is a year for annual financial statements and a quarter for quarterly financial statements. GAAP requires the following four financial statements: Balance Sheet - statement of financial position at a given point in time. What is the difference between Basic EPS and Diluted EPS? What is a Reporting Period? Therefore, the importance of the time period principle is to This is also true of the statement of cash flow which is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions. The statement of cash flows uses information from all previous financial statements. 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