Reporting Periods: Why 13 Might Be Lucky
We in the finance & accounting field can be creatures of habit. We get used to looking at things in terms of months. This is how we are schooled and how most companies set up their books. The problem is reporting on a monthly basis can make analyzing trends and making comparisons between periods difficult because we aren’t dealing with periods of equal length. So let’s consider the 4-week accounting period – 13 in each year.
Having periods of equal length with four Mondays, four Tuesdays, four Wednesdays and so on can really be beneficial. Restaurant chains and retail stores will often use this reporting structure because most holidays will fall in the same period every single year making comparisons more meaningful. The benefits are even greater if your pay schedule is bi-weekly. Just think – you may not need to do payroll accruals!! There is also an advantage related to inventory as scheduling & planning counts becomes easier because they will always fall on the same day of the week.
Going to a 4-week reporting cycle isn’t without its challenges. First, for those of you who noticed, 13 periods X 4 weeks X 7 days per week = 364 days. We all know there are 365 days in a year. So your year end will change by 1 day each year. There are two ways to handle this:
If you want to always have your periods start on a particular weekday, it would probably be wise to add one extra week to the fiscal year every 6 years to align it back with your “normal” fiscal year end.
If you aren’t overly particular about the day the period starts on, you could assign the first day of the fiscal year to always be an extra day in Period 1. You will also need to assign any leap days (Feb. 29) as an extra day in the period that Feb. 28th falls. In this scenario, the same dates will always be in the same periods.
Here are some other things that might appear to be challenges:
Bank statements are usually done on a monthly basis but this can usually be overcome by asking your bank to cut off your statement dates according to your schedule. And honestly, who isn’t using electronic downloads from their bank account anyway to do bank reconciliations? This objection to the 4-week reporting cycle is not a show stopper.
Some expenses are billed on a monthly basis. Handling this one does require a little bit of work on the part of the accounting staff but when you consider the potential benefits in reporting, it might be worthwhile. Let’s take rent, for example. Let’s say your rent for the year is $120,000. When you receive your monthly bill for $10,000, code it to a prepaid account and expense $9,230.77 per period (1/13th of the yearly total). By the end of the year, the entire amount will have been expensed equally amongst the periods and the prepaid account balance will be zero.
I know that some software packages like QuickBooks have their canned reports built on a monthly reporting schedule. In QuickBooks, this is easily taken care of by creating memorized reports with the appropriate date ranges corresponding to the period. There is probably a workaround in most systems if they don’t accommodate the 4-week reporting cycle.
Although using a 4-week reporting cycle may not be for every business, the above discussion will hopefully allow you to weigh the pros and cons and determine if it’s right for your company.