Accounting period

What is an accounting period?

The accounting period can also be referred to as the settlement or dunning cycle and describes any transactions that fall within a certain period. These submitted bookings can thereby be paid much later, but are assigned to this accounting period. In most cases, settlements are posted on a weekly, fortnightly or monthly basis. Many banks and companies use this cycle for their financial planning. The billing periods of the various payment providers also usually differ.

Thus, the billing can run over a calendar month or start on any other day. The length of the billing period depends on the type of credit card. For example, the accounting period for a classic credit card is usually one month. Debit cards or so-called prepaid cards, on the other hand, can be debited immediately.

Examples of the practical application of accounting periods

Dunning cycles in debtor management are used to facilitate the collection and calculation of interest and statements of account. To make it easier to understand, two billing period cases that are common in everyone’s life are presented.

An example is the accounting period of a credit card, where in its debit cycle all purchases and uses of the same, including charges, are added up to the last day of the cycle, when the bill is closed with the total amount of the expenses made. Usually, there are a few days of “grace period” between the closing of the invoice and the debiting of this amount on the account, so that the user is informed in advance of the total amount, which prevents surprises on the part of the beneficiary.

Another practical application of the payroll period is found in the payroll of a company’s employees. Usually, a balance sheet is prepared at the end of the month with the salary, reductions, and payroll taxes, called a pay stub, so that the employee knows how much he or she has received and what has been discounted according to the service he or she has rendered. If the transaction falls in January, that month is also the payroll period.

However, the employee usually does not receive his or her money until mid-February because the payment is not reserved until that time.

When does the accounting period begin and when does it end?

A collection cycle always has a start and an end date. The start is immediately after the end of the previous cycle. The accounting period can be variable, as invoices are due weekly, bi-weekly or monthly; in addition, there are several factors that can influence the variation of the billing cycle, such as: the start date of the service, the invoicing bank, the credit card and the customer’s preference (many banks allow the customer to choose the start and end date of their invoice according to their personal needs).

In companies, the billing cycle for the payment of the services provided by their employees is usually monthly and according to the previous working month.

A difference between monthly accounting period and shorter accounting periods

The accounting cycle is connected with the planning cycle, and although it is assumed that planning for a short period of time is more effective, the amount of bureaucratic effort may increase, which may affect the annual profit of the company. For this reason, in Germany as an example, collection cycles for monthly billing are standardized in almost all sectors of the economy.

For example, in the global commercial sector, it is common to also use a monthly collection cycle for billing, but an annual cycle is typically used for billing service fees.

Conclusion: The monthly accounting period is the most commonly used billing method in Germany

Although the payroll period may have a variable starting and ending day due to several factors and a cycle with a variable number of days, a standard period for monthly payroll has become established in Germany in a wide variety of industries. The use of credit cards and the payroll of employees of many companies follows this line and allows the facilitation of financial control by the companies and banks themselves, in addition to their taxpayers and beneficiaries.

In the business sector, it is common to offer monthly billing, although annual or quarterly billing is often useful in order to save on billing fees as a business on the one hand, and to retain customers by offering a corresponding discount on the other.