Accounting period concept means it records financial transaction in the books of accounts in the period in which it is occurred. Financial transactions are recorded in books year to year basis normally to ascertain profit for the year and know the financial position of the business entity. Because if accounting transaction are recorded indefinite period of time then one cannot come to finalization of accounts. Let we see about accounting reports.
What is Accounting period concept
The period of the entity is dividing into one period i.e., one year which is termed as Accounting Period. Business concern making profits to grow and distribute profits. It requires for recognition and measurement of income and expense and to match them to ascertain profit for the period. But, the concept of profit is time-related. Hence, the question will arise the profit for what period of time?
To know, periodic performances mainly for the purpose of comparison, the users of financial statements need periodical reports to know the operational result and the financial position of the business concern.Normally a period of 1 year or 52 weeks is considered as the accounting period.All the transactions are recorded in the books of accounts on the assumption to ascertain that profits for the transaction relating to accounting period. Accounting concept requires that a balance sheet and profit and loss account should be prepared at periodic intervals. It is necessary for some purposes, to calculate profit, ascertaining financial position, tax computation etc. moreover, accounting concept assumes that, indefinite life of business is divided into parts of time. Here lots of types of accounting reports available. It may be of one year, six months, three months, one month, etc.
For business practice one year is taken as one accounting period it may be a calendar year – the year begins from 1st of January and ends on 31st of December is called as calendar year, or a financial year – the year that begins from 1st of April and ends on 31st of March of the next year, is known as financial year.
As per accounting period concept, all the transactions are recorded in the books of accounts for a particular period of time say a year. Hence, if when goods are purchased and sold during the period, wages, other expenses etc. paid for the period are accounted for and against that period only.
Significance of the accounting period concept is –
– This concept helps in predicting the future prospects of the business.
– It helps to arrive tax liability to be paid on business income calculated for the accounting period.
– It helps financial institutions, creditors, etc to assess and analyze the performance of business for a particular period.
– It helps to compare the profits and financial position of the business for different time period.
– It provides at the year end the actual financial position and shows growth of the business entity since accounts is prepared for a year.
Originally posted 2013-10-07 05:38:46.