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Accounting Period(Periodicity) Concept Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Accounting Period(Periodicity) Concept Video Lecture - Accountancy Class 11 - Commerce

1. What is the accounting period concept?
The accounting period concept, also known as the periodicity concept, is a fundamental accounting principle that states that the financial activities of a business should be divided into specific and equal time periods for reporting purposes. This concept ensures that financial statements are prepared at regular intervals, usually annually, so that users of the financial information can make meaningful comparisons and evaluate the performance and financial position of the business over time.
2. Why is the accounting period concept important in accounting?
The accounting period concept is important in accounting for several reasons. Firstly, it allows businesses to provide regular and timely financial information to stakeholders, such as investors, creditors, and management. This helps in decision-making and assessing the financial health of the business. Secondly, it facilitates the preparation of accurate and reliable financial statements by ensuring that transactions and events are recorded within a specific time frame. Lastly, it enables the application of accrual accounting principles, where revenues and expenses are recognized in the period they are earned or incurred, rather than when cash is received or paid.
3. How does the accounting period concept affect financial reporting?
The accounting period concept has a significant impact on financial reporting. It requires businesses to prepare financial statements, including the income statement, balance sheet, and cash flow statement, for a specific period, typically one year. This allows stakeholders to analyze and compare the financial performance and position of the business over multiple accounting periods. Additionally, it ensures the consistency and comparability of financial information, as businesses follow the same reporting period for each accounting cycle.
4. Can a business choose any accounting period for financial reporting?
While businesses have some flexibility in determining their accounting period, there are certain guidelines they need to follow. Generally, businesses should adopt an accounting period of 12 months, known as the fiscal year, which aligns with the natural operating cycle of the business. However, in certain circumstances, businesses may choose a non-standard accounting period, such as a shorter or longer fiscal year. These situations may arise due to changes in ownership, merger or acquisition activities, or specific industry requirements. In such cases, proper disclosure and justification are necessary to maintain transparency and comparability.
5. How does the accounting period concept relate to accounting adjustments?
The accounting period concept is closely related to accounting adjustments. Accounting adjustments are made at the end of each accounting period to ensure that revenues and expenses are properly recognized and reported. These adjustments include accruals, deferrals, estimates, and corrections of errors. By making these adjustments, financial statements are prepared on an accrual basis, reflecting the true economic impact of transactions and events during the accounting period. This enhances the accuracy and reliability of financial information and aligns with the objective of the accounting period concept.
82 videos|105 docs|42 tests

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