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Introduction To Accounting: Part 14: Accounting Period Concept

Nishant Kumar
28/06/2017 0 0
  1. A while ago, we studied Financial Statements. The definition of Financial Statements is reproduced here: “Financial Statements” is a summary report that shows how a Business has used the funds invested into it by the owner, and what is its current Financial Position.

  1. A question now arises that when should a Business Entity prepare its Financial Statements.

  2. As per the Accounting Period Concept, a period (usually, a year) is decided at the start of a business, and Financial Statements are prepared after every year.

  3. A year, after which the Financial Statements of a Business Entity are prepared, is known as a Financial Year. It usually starts from 1st  April and ends on 31st.

  4. This is done because a number of users of Financial Statements require the information from the accounts at regular intervals so that decisions can be taken at the appropriate time.

  5. Examples:

    1. Management requires information at regular intervals to assess the performance and funds requirement (short-term as well as long-term).

    2. Banks require accounting information periodically because they have invested money and have to ensure its safety and returns.

    3. Government of India levies Income Tax on Profits earned and they need to assess the tax from the Financial Statements.

  6. Therefore, an Accounting Period is the interval of time at the end of which Income Statement and Balance Sheet are prepared to know the results and resources of the business.


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