Before you begin using Gnucash it is a good idea to set your accounting period. Even before you begin a new business you are required by the IRS to select your accounting period for reporting profit and loss. For IRS purposes, a “tax year” is an annual specified period of time for keeping your business records and reporting income and expenses.
Two methods used for an accounting period and approved by the IRs are.
- A Calendar year – 12 consecutive months beginning January 1 and ending December 31.
- A fiscal year’ which does not start on Jan1 and necessarily end on Dec31.
Some businesses and organizations prefer to keep records based on a ‘fiscal year’. For most small businesses, their accounting period will be based on the calendar year, 12 consecutive months beginning January 1 and ending December 31.
By setting up your accounting period preferences in Gnucash you are in essence telling the system this is the Starting date and ending date I want to use for my business accounting profit/loss calculations and net assets calculations. This is so important in bookkeeping, that you are able to keep track of the business’s profit and loss and provide evidence to the IRS based on your annual accounting period.
Not only can Gnucash accounting period preferences be used to produce reports based on the dates you set, but it can also be used to generate specific date range reports. This can be helpful to you when you want to know how your business finances are doing based on a specific period of time.
How To Setup The Accounting Period
In Gnucash the preferences feature is used to set up your accounting method and period. To begin select Edit from the menu bar, and when the menu opens select preferences.
By default, the accounting period is the first option. You have two choices here Relative and Absolute, choose Relative if your business uses the calendar year accounting period. 12 consecutive months beginning January 1 and ending December 31. Pictured below are the stand settings for a calendar year accounting period.
Select Absolute if your business uses the fiscal year accounting period. Both Relative and Absolute uses the dates you specify as the starting date and the ending date for profit/loss calculations and net assets calculations. The only thing you would do differently if your business uses the fiscal year accounting period is select absolute instead of Relative and set the start and ending options and dates specific to your business accounting period.
The accounting period is also used for financial reports in GnuCash. You can use the accounting period to generate reports based on a specified date range. To view a standard report based on the present relative accounting period settings. Select reports on the menu bar and when the menu opens, select Income and expense, and when the submenu opens select profit and loss.
Here you have the Profit and loss report based on the dates set in preferences for the Relative accounting period.