Periodicity concept

Periodicity concept
See also
Accounting reports Accrued income Horizontal Analysis Adjusted ebitda Annual depreciation Costing system Stock-taking Economic Value Added - EVA Comparative statements

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 other's .

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. 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.

Advantages of periodicity concept

The advantages of periodicity concept are as follows:

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

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

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

References

• Hanif M, Mukherjee A (2013), Financial Accounting (Volume I), McGraw Hill Education, New Delhi
• Hanif M (2001), Modern Acc. Vol I, 2E, Tata McGraw-Hill Education, New Delhi
• Pendlebury M, Groves V. R, Groves R (2004), Company Accounts: Analysis, Interpretation and Understanding Sixth Edition, Cengage Learning EMEA, Andower
• Rajasekaran V, Lalitha R (2011), Financial Accounting, Pearson Education India, New Delh
• Tally Education Ltd (2018), Official Guide To Financial Accounting Using Tally.EEP 9, Fourth Revised&Updated Edition, BPB Publications, Mumbai

Author: Angelika Załęska