While the usual, Gregorian calendar is something all of us are used to, when it comes to businesses, it may not always be the most practical solution for creating and comparing financial activity. When months have a different number of days and they don’t all begin and end on the same day of the week, making accurate comparisons is difficult. To get rid of this “numbers” issue, implementing a 13-week accounting period can be efficient and profitable. While this falls into the same idea as the 13-month calendar year, it gives a more focused perspective on how accounting should happen during that period. So, what does a 13-week accounting period look like and how can it help your business?
What is 4-4-5 Accounting?
A 4-4-5 accounting period, or 13-week accounting period, is designed to break the year into four quarters with 13 weeks each. A quarter is then broken up into two 4-week blocks followed by a 5-week block, hence the name of the 4-4-5 accounting period. Also, while regular years have 52 weeks and 365 days, the 4-4-5 calendar requires that every five or seven years a 53-week catchup year occurs, which leads to 364-day years. With each week starting on Monday and ending on Sunday, businesses can identify missing trends in their profit and loss reports and adjust accordingly if needed. This system is ideal for the retail industry since high volume days are common, as opposed to other industries where volume is consistent on a daily basis.
Why Implement 4-4-5 Accounting for Your Business?
One of the main reasons the 4-4-5 accounting period works for the retail industry is because it allows for the proper planning of inventory. Allocating Sundays or Mondays for inventory is a great way to ensure that supply cost percentages are tied to the following week of sales based on the numbers from previous reports for that same period to reduce the number of losses. Also, this system makes it easier to get a true look into your financials by allowing quarterly comparison, since the year is broken up into four quarters, each with the same number of days following the same structure. When it comes to year-by-year comparisons, the 53-week calendar allows for the alignment of holidays so that the analysis results can be as accurate as possible. Also, labor costs can be better understood and prepared for given the consistency of each week. Finally, it’s easier to get funding from financial institutions as most banks accept a 13-week accounting period making it easier for both your accounting and the bank to monitor any loans.
Making the switch to a 4-4-5 accounting period can be one of the most advantageous moves you can make for your business. It allows for more accurate comparison, better management of funds and costs and being more prepared for new periods in terms of resources. While switching to this system can be challenging, tools like Yardi Corom lease accounting software can help you get a better understanding of what this entails and better manage your financials and reports.
Yardi Corom is a simple and comprehensive accounting, lease and workplace management solution for CRE tenants. Our cloud-based software solution increases efficiency and accuracy across your entire lease portfolio: manage leases and subleases, track key lease data, centralize transactions and become FASB/GASB/IFRS compliant. To learn more, you can visit our website or schedule a meeting with our team.
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