Accounting principles and Policies
3. Accounting Period Concept or Periodicity Concept:
This concept is the based on Going Concern, concept. As per the going concern concept, the life of the business is considered to be indefinite. However, the measurement of income and study of the financial position of a business house after a very long period would not be helpful in taking the corrective action within the right time.
In order to tackle the above problem, accounting period concept is developed. As per this concept, the life of the business is divided into appropriate segments or into time interval and after every time interval, the businessman must ‘stop’ and ‘see back’, how things are going. A segment or time interval is called ‘Accounting Period’, which is usually one year. The relationship between Going Concern and Periodicity can be depicted by the following diagram:
Year1 Year2 Year3 Year4 Year5 Year6 Year7
Life of Organization
Thus, at the end of each accounting period, an income Statement and a Balance Sheet are prepared. The Income Statement discloses the profit or loss, made by the business during the accounting period, while the Balance Sheet depicts the financial position of the business at the end of Accounting Period.
Further, it is to be noted that this concept is also necessary for the allocation of expenses between capital and revenue. That portion of capital expenditure, which is consumed during the current period, is charged as expenses to income statement and unconsumed portion is shown in the balance sheet as an asset for the future consumption.
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