Periodicity Concept– According to this idea accounts need to be prepared after every period & not at the end of the life of the entity. Generally this duration is one calendar year.
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Periodicity Principle In Comprehensive
As per ‘going concern’ principle an inde nite life of the entity is presumed.
If a fabric mill lasts for 100 years, it is not preferable to measure its efficiency in addition to Financial position only at the end of its life.
So a small but convenient fraction of time is chosen out of in nite life cycle of business entity for determining performance and looking at the Financial position. Usually one year period is used up for performance measurement and appraisal of Financial position. It might likewise be 6 months or 9 months or 15 months.
According to this idea accounts ought to be prepared after every period & not at the end of the life of the entity. Typically this period is one calendar year. In India we follow from 1st April of a year to 31 st March of the immediately following year.
Therefore, for efficiency appraisal it is not necessary to check out the revenue and expenses of an unduly long time-frame. This concept makes the accounting system practical and the term ‘accrual’ meaningful. If one thinks of inde nite time-frame, absolutely nothing will accrue. There can not be unsettled expenses and non-receipt of revenue. Accumulated expenses or accrued revenue is just with recommendation to a nite time-frame which is called accounting duration.
Therefore, the periodicity concept helps with in:
- ( i) Comparing of Financial declarations of different periods
- ( ii) Uniform and constant accounting treatment for ascertaining the pro t and properties of business
- ( iii) Matching regular revenues with costs for getting proper results of the business operations
In more Basic Words
This principle derives from the going-concern idea. A 12- month period (one year) is the normal reporting period. This is the principle called periodicity, time- duration assumption or merely accounting duration.
Periodicity allows users of the reports to make contrasts of information between definite durations and among business in the exact same industry (as a basis for decision-making). The concept assumes that company transactions can be determined with particular durations even when we understand that some transactions (e.g. purchasing a set asset), have consequences for lots of periods. Determination of earnings on a periodic basis, as implied by the idea, leads to comparisons of the outcomes of succeeding durations.
Advised
- Capital Invoices and Income Invoices
- Double Entry System Advantages & Disadvantages
- Deferred Income Expenditure
- Difference in between Book Keeping and Accounting
- Book Keeping
- Function of Accountant
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