Monday 23 July 2012

Accounting Period Concept


Even though it is assumed that business will continue to exit for a long time, it is necessary to keep accounts in such a manner that the results are known at frequent intervals. Generally business concern adopt twelve months period for measuring the income of the concern.

This time interval is called 'Accounting Period'. At the end of each accounting period an Income and Expenditure Account and Balance Sheet are prepared. The Income and Expenditure Account disclose the income or loss sustained by the business during the accounting period. Similarly balance sheet reveals the financial position of the business on the last day of accounting period.

Truly speaking, the measurement of income or loss of a business entity is relatively simple on a whole life basis. A complete and accurate picture of the degree of success achieved by a business unit cannot be obtained until it is liquidated, converts its assets into cash and pays off its debts. On liquidation, it is possible to determine with finality its net income. But the owners, the investors and overall the Government, all are impatient and don not want, until the dissolution of the concern, to know what has been the results of the business activities. All these persons are interested in regular reports and accounts at proper intervals to know "how things are going?" This means that the final accounts must be prepared on a periodic basis rather than waiting till the business is terminated.

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