Explain Accounting Period Concept.

It is due to the Accounting Period Concept that financial statements are prepared at regular intervals — generally one year. This period is called the accounting period. The net profit/net loss of the business is ascertained separately for each accounting period, and the financial position is ascertained on the last day of the accounting period. Under tax laws in India, the accounting period starts from 1st April and ends on 31st March of the next year.

The Going Concern Concept implies that the business will continue indefinitely. As such, the true results of business operations could only be ascertained after liquidation. But measurement of profit and financial position after a very long period would be of little use to owners, managers, investors and others, who need periodical reports on the performance of the business. Therefore, the entire life of the firm is divided into time intervals (called accounting periods) for the purpose of financial reporting.

This assumption requires that any expenditure whose benefit will accrue over a long period should be apportioned suitably over each year.