Summary Business Accounting

Question:

[Based on Appendix 5] Interim reports are issued for periods of less than a year, typically as quarterly

financial statements. Should these interim periods be viewed as separate periods or integral parts of the

annual period?



Answer:



These perspectives are referred to as the discrete and integral part approaches. Current interim reporting

requirements and existing practice generally view interim reports as integral parts of annual statements.

However, the discrete approach is applied to some items. Most revenues and expenses are recognized in

interim periods as incurred. However, if an expenditure clearly benefits more than just the period in

which it is incurred, the expense should be spread among the periods benefited. Examples include annual

repair expenses, property tax expense, and advertising expenses incurred in one quarter that clearly

benefit later quarters. These are assigned to each quarter through the use of accruals and deferrals. On the

other hand, major events such as discontinued operations, extraordinary items, and unusual or infrequent

items should be reported separately in the interim period in which they occur.