Favorite Write A Short Note On Accounting Period Concept

This concept is very important because if transactions of a business are mixed up with that of its owners or other businesses the accounting information would lose its usability.

Write a short note on accounting period concept. Accounting Period Concept. This concept allows accountants to anticipate future losses rather than future gains. Business Entity Concept business is a separate entity.

The accounting equation is made visible in the balance sheet where the total amount of assets listed must equal the total of all liabilities and equity. Assets Liabilities Equity The accounting equation is registered in the balance sheet where the amount of the total assets should be equal to liabilities and equity of the firm. Accounting cycle refers to the specific tasks involved in completing an accounting process.

Thus the accounting period is normally adopted for one year. Time Period Assumption The indefinite life of an enterprise is subdivided into time periods or accounting periods which are usually of equal length for the purpose of preparing financial reports. Reports to the outsiders are provided on this accounting period.

So to determine the income of a period all the revenues and expenses whether paid or not must be included. This concept is simply intended for a periodical ascertainment and reporting the true and fair financial position of the concern as a whole. According to this concept it is necessary to match the expenses incurred during the accounting period with the revenues recognized during the same period.

The concept is derived from the accounting equation which states that. At the end of the each accounting period an income statement and balance sheet are prepared. To determine the profit or loss of a firm and to ascertain its financial position profit loss accounts and balance sheets are prepared at regular intervals of time usually at the end of each year.

One year accounting period is recognized by law and the taxation is assessed annually. Going Concern Concept perpetual succession. It may vary from organization to organization but the process remains the same.