Some organisations don’t divide their calendars into the same standard quarters and months as the rest of the accounting world.
For a host of good reasons, some prefer their trading periods to be of uniform length and to finish on the same day of the week.
While there are several alternatives to traditional accounting periods, the most common is the 4-4-5 calendar.
How does the 4-4-5 accounting calendar work and who uses it?
Under the 4-4-5 calendar system, each year is divided into quarters of 13 weeks each. Each of those quarters is itself split into three periods or “months”. The first and the second of those periods run for four weeks, while the third runs for five weeks. In other words, each quarter consists of two 28-day “months” followed by a 35-day one.
The system is particularly popular in certain sectors, including retail, manufacturing, consumer goods distribution, hospitality and publishing. It has the advantage that each period is the same length and ends on the same day of the week.
The system also makes it more straightforward to compare performance between quarters, or with the corresponding period in previous years. And it helps smooth out fluctuations in sectors where certain days of the week are traditionally busier – most obviously retail, where Saturday is historically the busy day.
For manufacturers, the system can aid planning by helping align production schedules with the accounting period. And payroll departments often prefer the system to calendar months, because accounting periods consist of whole working weeks.
The drawbacks of the 4-4-5 accounting calendar
While it solves some problems, the 4-4-5 calendar has its drawbacks:
It creates an accounting year only 364 days long. As a result, it is necessary to have a 53-week “year” every five or six years, making year-on-year comparisons difficult at that point.
More pressingly, it can lead to bills such as rent arriving twice in the five-week “month” each quarter.
4-4-5 accounting periods and finance software
Working with a 4-4-5 accounting period – or any other system that doesn’t match the conventional calendar – can present a challenge to entry level accounting software, which tends to be structured around dates.
More powerful and flexible accounting software can, however, deal in periods rather than dates. The user can define a “period” however they like – as one of the four-week or five-week “months” in the 4-4-5 system or any other length of time required.
The same is true when it comes to consolidating accounts for groups of entities. If some subsidiaries have different year-end dates from other parts of the group, for instance, software should be able to map those conflicting periods across to the consolidated reports with ease.
Thanks to the uneven months of the Gregorian calendar, there is no way to organise the financial year to suit everyone. But good software should be able to adapt to whichever system the user chooses – not force the user to follow its systems.
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