Accounting Period Concept

Strictly speaking, the net income can be measured by comparing the assets of the
business existing at the time of its commencement with those existing at the time of its
liquidation. Since life of business is assumed to be indefinite (going concern concept), the
measurement of income, according to the above concept, is not possible for a very, very long
period. The proprietor of the busienss cannot wait for such a long period as the determination
of income at the end of the life of business would render such a measurement of income
useless in as much as it will be too late to take corrective steps at the time, if it is disclosed
that the business had all the time being running at a loss on account of certain reasons or
business had not been using its fully capacity to make more profits. Thus, he needs to know
at frequent intervals “how things are going”.Therefore, accountants choose some shorter and
convenient time for the measurement of income. Twelve-month period is normally adopted
for this purpose. Under the Companies Act and Banking Regulation Act accounts are to be
prepared for a 12-month period. This time interval is called accounting period.