Explain the concept of periodicity with example. - Vidyadip

Question

Explain the concept of periodicity with example.

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Answer

The life of the business is divided into specific accounting periods, it is known as accounting period. At the end of each accounting period financial statements are prepared. Such accounting period is also known as accounting year. Usually, the accounting period is of $12$ months $(1$ year$).$ Such an accounting year could be calender year a financial year. Examples: $(1)$ Profit & Loss A/c & Balance Sheet of business are prepared at the end of the accounting period, based on this concept. $(2)$ Since the life of the business is assumed to be indifiniteor for a very long period, such life is divided into convenient accounting periods to ascertain performance and position of entity at the end of each such accounting period.

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