Periodicity concept

Periodicity concept
Primary topic
Related topics
Methods and techniques

The periodicity concept, can be also called the time interval concept, is a period during which business enterprises are required to prepare financial statement at specified intervals. Under this concept periodicity concept are generated over relatively short periods of time for example, a year or a quarter, so that performances can be measured and compared to each others [1].

This statement requires the company to have a profit and loss account and a balance sheet prepared at regular intervals to identify information about the business unit for all shortcomings in performance evaluation, tax calculations, budget control and the like. Determining the income of a period leads to a comparison of the results of subsequent periods[2]. The periodicity concept are specific to a business’ type and there are some types of business which are called „continuing profit seeking enterprises”. In this type of enterprise, enterprises last indefinitely. In such cases, accounting and reporting must be carried out periodically[3].

Advantages of periodicity concept[edit]

The advantages of periodicity concept are as follows[4][5]:

  1. The uniformity and consistency of the accounting treatment for the purposes of determining the profit and valuation of assets.
  2. Proper matching of periodical revenues and costs to the achievement of accounting objectives
  3. The comparability of financial statements for different periods is facilitated
  4. Financial information is accessible for user at specified time intervals
  5. Through periodic evaluation, appropriate measures can be taken in a proper time
  6. It serves useful and reliable information for statutory and regulatory companies

Disadvantages of periodicity concept[edit]

Despite advantages mentioned above, the periodicity concept results in some disadvantages which can be such as[6]:

  1. Usually business transactions are spread for more than only one settlement period
  2. Allocation of costs to a specific settlement period is difficult hard to manage
  3. This concept replaces the various accounting bases and other accounting concepts, resulting in misleading financial statements

Footnotes[edit]

  1. Tally Education Ltd (2018)
  2. Hanif M (2001)
  3. Rajasekaran V, Lalitha R (2011)
  4. Rajasekaran V, Lalitha R (2011)
  5. Hanif M (2001)
  6. Rajasekaran V, Lalitha R (2011)

References[edit]

Author: Angelika Załęska