Question

In: Accounting

Why are accounting periods an interesting topic?

Why are accounting periods an interesting topic?

Solutions

Expert Solution

Accounting period is span of time covered by a set of financial statements. Normally accounting period consists of a quarter, six months or an year

This period defines the time range over which transactions are cosnidered in the financial statements.

Accounting period is of utmost importance as it is required for the investors for comparing with the results of the respective time periods with that of earlier performances.

Technically accounting period concept applies to statement of P&L and statement of cash flows as they depict the accounting transacation over a period. However the same is not importatnt for balance sheet as the balance sheet provides the details as on a particular date.

The length of accounting period to be used depends upon the nature and the requirement of each business as well as the need for the users of financial statements.

Accounting period assumption enables entity to divide economic activities into short time periods. For each time period companies prepare and publish a set of financial statements to meet the needs of users of financial statements. This information is very important for all the stakeholders to make reliable business decisions on a timely manner


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