PERIODICITY ASSUMPTION

Periodicity Assumption In accounting, periodicity refers to the equal length of time or relatively short periods of the economic life of the organization. Periodicity assumption lets divide the life of a company into artificial time periods to provide timely information. Periodic would mean monthly, quarterly, semi-annually or annually. Periodicity assumption correlates with the qualitative characteristic of timeliness. Economic transactions and events are captured and recorded in the time period in which they happened. Financial Statements are prepared periodically so that users of the economic information can know the financial standing of the business at a certain period and may think of courses of actions and strategies to implement and make decisions accordingly. Hence, when preparing financial statements, it is important to indicate the date and time period it covers. As a requirement, annual financial statements must be submitted and filed to BIR, consequently companies prepare such reports. While, financial reporting is done annually and reported externally, internally, financial statements are prepared in time periods shorter than one accounting year. The practice of organizations formed under the Philippine law the annual time period or accounting period is the same year as the calendar year, while in some countries, practices corresponds to the natural business year of the business. So, in our financial reporting, Financial Statements covers the time period from January 1 to December 31. This refers to as the calendar year. The natural business year is the 12-month period that ends when the business activities of a company reach their lowest point in the annual cycle. Thats why there are companies which end their annual financial statements in months other than December 31. This is which is referred to as fiscal year. Fiscal year is a 12-month period which begins from any month other than January 1. Aside from the annual time periods, in accounting, theres also the so-called interim periods. Interim period is any short time period within an accounting period. Interim period can be weekly, monthly, quarterly or semi-annually. The reports prepared during the interim period are called interim reports.

References : Intermediate Accounting by Spiceland, Sepe, Nelson. McGrawhill, 2011

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