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Periodicity Concept

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Periodicity Concept – According to this concept accounts should be prepared after every period & not at the end of the life of the entity. Usually this period is one calendar year. In India we follow from 1st April of a year to 31st March of the immediately following year.

Periodicity Concept In Detailed

This is also called the concept of de nite accounting period. As per ‘going concern’ concept an inde nite life of the entity is assumed. For a business entity it causes inconvenience to measure performance achieved by the entity in the ordinary course of business.

If a textile mill lasts for 100 years, it is not desirable to measure its performance as well as nancial position only at the end of its life.

So a small but workable fraction of time is chosen out of in nite life cycle of the business entity for measuring performance and looking at the nancial position. Generally one year period is taken up for performance measurement and appraisal of nancial position. However, it may also be 6 months or 9 months or 15 months.

According to this concept accounts should be prepared after every period & not at the end of the life of the entity. Usually this period is one calendar year. In India we follow from 1st April of a year to 31st March of the immediately following year.

Thus, for performance appraisal it is not necessary to look into the revenue and expenses of an unduly long time-frame. This concept makes the accounting system workable and the term ‘accrual’ meaningful. If one thinks of inde nite time-frame, nothing will accrue. There cannot be unpaid expenses and non-receipt of revenue. Accrued expenses or accrued revenue is only with reference to a nite time-frame which is called accounting period.

Thus, the periodicity concept facilitates in :

  • (i)  Comparing of nancial statements of different periods
  • (ii)  Uniform and consistent accounting treatment for ascertaining the pro t and assets of the business
  • (iii)  Matching periodic revenues with expenses for getting correct results of the business operations
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Article by Raju Choudhary Raju has written 537 articles. If you like This post, you can follow CAknowledge on Twitter. Subscribe to CAknowledge feed via RSS or EMAIL to receive instant updates.