If your business is publicly traded, the Securities and Exchange Commission requires that you file quarterly interim financial reports. Interim accounting periods are shorter than a year, and while the standard interim accounting period is three months long, if your organization is privately owned, you can choose almost any period – six months or even a month. As with most things in accounting, consistency is crucial, and if you choose to identify monthly accounting periods, for example, you must continue to do so. Those interested in your company, such as lenders, may think it strange when you skip an interim period.
Interim accounting methods can be integral, discrete or a combination of the two. The integral method stems from the view that interim accounting periods help to complete the accounting cycle and are, therefore, an “integral” part of the annual period. Under his method, you must spread accruals and expenses across all periods even when you incur these events in some periods and not in others. The discrete method treats interim accounting periods in the same manner as annual periods, and as such, recognizes accruals and expenses in the period in which they are incurred. The third approach to reports attempts to minimize the disadvantages of the other two approaches while enjoying the advantages. Accountants refer to this approach as the “combination” approach.
At the end of each interim accounting period, you prepare financial reports as you would at the end of the year. Depending on your reporting method and your situation, you may use condensed statements. Although you can prepare any financial report at any given time, the typical reports you are likely to produce are the balance sheet, income statement, statement of owner’s equity and the cash flow statement. These statements give an indication of the results of your business activities at a point in time, and allow interested entities to make decisions regarding further associations with you.
Interim accounting financial reports are tools to help you keep a finger on your organization’s pulse. Quarterly financial reports, for example, can help you determine if projects are moving as planned and if you are capitalizing on investments. Interim accounting periods allow you to make adjustments to your business activities, and may help you prevent losses from becoming catastrophic. Instead of waiting a full year to pull out of a venture that is not producing, you can pull out at an interim period when you are not quite as vested as you would be in a full year. Investors review your interim financial reports for the same reasons.
Financial statements give information about your company for a specific period. The balance sheet for the “Quarter Ending March 30” is a summary of your activities for the three-month period ending on March 30; it is not necessarily a reflection of all periods in your accounting cycle. Review and compare several interim periods to get a complete summary of your business results. In doing so, you can pinpoint the fluctuations in your business cycles. You should also take note of periods that show abnormal activities such as spikes, in any direction, in income.
- Securities and Exchange Commission: Financial Reporting Manual; 2011
- “The Accounting Review”; Interim Statements: An Analytical Examination of Alternative Accounting Techniques; Dov Fried, et al.; 1981
- “The Vest Pocket Controller”; Steven M. Bragg; 2010 (Page 397)