What does accounting year mean?
What does the principle of separation of exercise mean?
How to apply the principle of separation of exercise?
What does accounting year mean?
An accounting year represents a well-defined period of time, during which an entity mentions all the economic and financial facts that it has made. All these elements mentioned are used to draw up an accounting balance sheet at the end of the period delimiting the financial year.
An accounting period has a duration of 12 months. The first financial year of a company can have a duration of less than 12 months in Morocco. However, a financial year of more than 12 months is not allowed, even if it is the first financial year of a company.
The accounting year does not always correspond to the calendar year. The company can choose a closing date for its financial year other than 31 December. This is often the case for activities with a particular seasonality.
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What does the principle of separation of exercise mean?
The principle of separation of fiscal years, an accounting principle, which aims to attach expenses and income to the fiscal year that concerns them.
In order to guarantee the reliability of a company's accounts, it is important to ensure that each accounting year includes the charges and products attached to it and only those.
The event making it possible to attach an expense or an income to a fiscal year varies according to the types of operations. For example, in the case of sales of goods, it is the delivery date of the product which is authentic and which therefore determines the accounting year to which it is attached.
How to apply the principle of separation of exercise?
To apply this principle, you must first:
- Enter all expenses and all income related to the exercise.
- Enter all expenses and income known after the closing date and before the establishment of the balance sheet.
Compliance with the principle of separation of exercises requires in practice the recording of the following elements:
- Charges to be paid: all charges relating to the current financial year but for which invoices would be received after the end of the financial year.
- Prepaid expenses: expenses relating to the following financial year but accounted for in the current financial year.
- Income to be received: all income relating to the financial year but for which invoices will be issued after the end of the financial year.
- Prepaid income: income relating to the following financial year but recorded in the current financial year.