Business task is liquid. Revenue and price generating activities are in consistent activity. Just because it is time to rotate a web page on a calendar does not expect that all business activity ceases. But, for purposes of measuring performance, it is important to attract a line in the sand of time. A
An accounting assumption that purports to divide a consistent company process right into measurement intervals, such as months, quarters, and years
" data-gt-translate-attributes="<"attribute":"data-cmtooltip", "format":"html">">periodicity assumption is made that company activity can be separated into measurement intervals, such as months, quarters, and years.

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Accounting Implications

Accounting must divide the constant business process, and also create periodic reports. An yearly reporting duration might follow the calendar year by running from January 1 through December 31. Annual periods are generally better divided right into quarterly durations containing activity for 3 months.

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Before moving amethod from the periodicity assumption, and also its accounting ramifications, tbelow is one crucial aspect to note. If bookkeeping did not call for routine measurement, and rather, took the watch that one might report only at the end of a procedure, measurement would certainly be easy. For example, if the software program agency were to report revenue for the three-year duration 20X1 with 20X3, then revenue of $25,000 would be basic to measure. It is the periodicity assumption that muddies the water. Why not simply wait? Two reasons: initially, one can wait a lengthy time for activities to close and also come to be measurable with certainty, and also second, investors cannot wait long durations of time prior to discovering just how a company is doing. Timeliness of data is important to its relevance for decision making. Therefore, actions and assumptions are required to produce timely data, and also that is why the periodicity presumption is put in play.


Did you learn?
Define the periodicity presumption, and understand its prestige in earnings measurement.

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What is a fiscal year versus a calendar year?
Understand the nature and also conceptual importance of the “accrual” basis of bookkeeping.

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Further Reresources
Illustrative EntriesExamples of journal entries for plenty of sample transactions


Account TypesTypical financial statement accounts through debit/crmodify rules and also disclosure conventions