Periodization

Last updated: 2021-06-22

A basic principle in accounting is periodization. This means that income and expenses are distributed so that they are booked in the period they belong to.

The reason for periodization is to ensure that the results for a period are as fair as possible. It will be if only the income and expenses belonging to the period affect the result.

Accounting-wise, accrual means that income and expenses that do not relate to the current period become an asset or liability for the next period. The accrual also has an impact on the result for the period in which the income or expenses are to be recognized as income or expense.

The company’s accruals are compiled in an accruals report. Read more about accrual reporting.

Example of periodization

An invoice for premises rent of SEK 90,000 is received and paid in January. The invoice refers to the months of January, February and March. The rental cost is SEK 30,000 for each month.

The result for January is charged with SEK 30,000. The remaining SEK 60,000 is periodized so that the results for February and March are charged with SEK 30,000 each. SEK 60,000 also ends up as an asset in the company’s balance sheet.