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Glossary

Period

In the context of accounting and finance, a "period" typically refers to a specific duration or timeframe used for financial reporting, analysis, or decision-making purposes.

What is a period?

A period represents a unit of time utilized for measuring the duration between two occurrences. This measure is instrumental in determining the frequency of cyclic events, such as the complete cycle of a waveform or a planet's orbit around the sun.

How to calculate a period?

Determining a period requires specific information, including the days within the period, the annual day count, and the interest rate. The period can be calculated using the equation: period = (days in year - days in period) / interest rate.

Considerations when calculating a period

Two significant factors to consider when computing a period are compounding and rounding. Compounding might lead to inaccuracies over extended periods, while rounding can cause errors, particularly for periods not evenly divisible by the days in a month. To mitigate these inaccuracies, using a precise calculator up to the nearest hundredth of a percent is advisable.