Periodicity concept - Tax and Finance Guide

Periodicity concept is also called the concept of definite accounting period. As per going concern’ concept an indefinite life of the entity is assumed. For a business entity it causes inconvenience to measure performance achieved by the entity in the ordinary course of business.

If a textile mill lasts for 100 years , it is not desirable to measure its performance. As well as financial position only at the end of its life. So small but workable function if time is chosen out of infinite life cycle of business entity for measuring performance. And looking at the financial position.

Further, generally one year period is taken up for performance measurement & appraisal of financial position. However, it may also be 6 months or 9 month or 15 months.

In simple words, periodicity concept says break the life of a business into equal pieces and each of this pieces(period) is known as accounting period. Further, accounting periods are used to estimate the profit or loss & financial position of a business for a specific time window.

According to this concept accounts should be prepared after every period & not at the end of the life of the entity. Usually this period is one calendar year. We generally follow from 1st April of a year to 31st March of the immediately following year.

Thus the performance appraisal it is not necessary to look into the revenue and expenses of an unduly long time frame. This concept makes the accounting system workable and the term ‘ accrual’ meaningful. If one thinks if indefinite time-frame , nothing will accrue.

Furthermore , there cannot be unpaid expenses and non- receipt of revenue. Accrued expenses or accrued revenue is only with reference to a finite time-frame which is called accounting period.