accounting period concept

What is Accounting Period Concept?

The Accounting Period Concept states that accounting activities period should be divided into smaller intervals so that performance of the business can be measured. In order to report the performance of the business to outsiders, one year is the usual accounting period.

Most of the corporate has to provide annual report to the shareholders as well as income tax reporting on annual basis. In most of the businesses, the accounting year or fiscal year corresponds to the calendar year. But there are many businesses use the natural business year instead of the calendar year.

Interim Reports

Management needs information more often than once a year. Income statements for management are therefore prepared more frequently. The most common period is a month, but the period may be as short as a week or even a day.

Problems with Accounting Period Concept

Businesses are living, ongoing organisms. The act of chopping the continuous stream of business events into time periods is arbitrary. Since business activities do not stop or change significantly as one accounting period ends and another begins. This fact makes the problem of measuring income for an accounting period the most difficult problem in accounting.

Accounting Period Concept Example

Ram & Sons is running a garments business. As per going concern concept the business will run for indefinite period. So, as per accounting period concept, Ram & Sons prepare their accounts once in a year where the year starts on 1 April and ends on 31st March.