Definition: The time period principle is a financial accounting principle that assumes all companies and organizations can divide activities into time periods. These time periods are often called accounting and reporting time periods and can be weekly, monthly, semi-annually, annually, or any other time interval.
What Does Time Period Principle Mean?
Regular financial reporting plays an important role in the accounting industry. Since all financial statements tell the financial story of a company at a certain point and time, it is important that these reports and statements are available to lenders and investors regularly.
Take publicly traded companies for example. They typically produce quarterly financial statements. Some companies even produce monthly or weekly statements. The time period principle allows these companies to divide up their operations and activities into time periods instead of productions processes or jobs. This is convenient for lenders and investors to see company wide progress as well as growth.
Private companies aren’t required to issue quarterly financial statements usually use a year as their accounting or reporting period. Most of time these companies’ accounting and reporting year coincides with their tax year, but it doesn’t always coincide with the calendar year. For instance, some companies may choose to end their fiscal year on June 30th.
Most standardized accounting organizations have June 30 year-ends, so their year-end doesn’t interfere with tax season. These organizations will usually issue financial statements at the end of June as well as files tax returns mid year. The time period principle let’s companies choose their own natural business year.