Periodicity concept, Accounting Basics

Though the results of the operations of an exact enterprise can be termed as precisely only after the business has ceased to control, its assets have been sold off and responsibilities paid off, the knowledge of the outcomes periodically is also essential. Those who are interested in the operating outcomes of a business obviously cannot wait until the end. The needs of these parties, then force the accountant to report the changes in the wealth of a firm for several time periods. Such time periods in actual practice vary, if a year is the most general interval as a result of established business tradition, practice and government needs. Several firms adopt the calendar year and several others the financial year of the government. However more and more firms are changing to the 'natural' business year, the end of that is marked through relatively lower or lowest volume of business activity in the year period.

The custom of utilizing twelve-month period is applied merely for external reporting. The firms generally adopt a shorter span of interval, or as one or may three months, for internal reporting reasons.

The allocation of long-term costs and the complexities related with this process directly stem from such concept. Whereas matching the earnings and the cost of those earnings for any accounting duration, all the revenues and all the costs concerning to the year in question have to be considered in account irrespective of whether or not they have been received in cash, or paid in cash. In spite of the difficulties that arise in allocations and adjustments, short term reports that is: yearly reports are of such significance to owners, creditors, management and other interested parties which the accountant has no choice but to resolve these difficulties. Clearly, the utility of the periodic financial statements outweighs the complexities.

Posted Date: 4/3/2013 5:56:59 AM | Location : United States

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