May 28, 2022

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ACCOUNTING CONCEPT-PERIODICITY CONCEPT

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ACCOUNTING CONCEPT-PERIODICITY CONCEPT



Periodicity concept states that financial statements and other accounting reports should be made available by accountants within a particular period of time.

The periods in which financial statements and other accounting reports are prepared are divided into daily reports, weekly reports, quarterly reports, semi-annual reports and annual reports.

Periodicity is also referred to as time assumption principle.

Investors, creditors, researchers, as well as management needs financial reports to be segregated into periods.

Also, periodicity can be looked at from two perspective. There are fiscal accounting periods perspective and accounting periods perspective.

Fiscal period is also known as government tax year, is the 12-Months periods the government of a country used to prepare its financial statements and prepare budgets. In Nigeria, the fiscal year runs from January to December every year.

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Accounting periods is the 12-Months periods, each entity set up as when they will prepare and present their financial statements and it varies from entity to entity.

Importance of Periodicity Concept

1. Periodicity concept helps the accountant to divide a large streams of financial transactions into clusters of periods.

2. It helps investors and creditors makes informed decisions on-time.

3. When companies provides financial reports by periods, its affects the value of their shares/stocks. This is true because, investors and other dealers in the flour of the exchange respond quickly to every new information. This may be one of the reasons why the financial sector contributes more to, the market capitalization of the Nigerian Stock Exchange, than other any other sectors.

3. A periodic reports enable Managements and Directors to carry out analysis needed to attain the goals and objectives of the entity.

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4. Regular periodic reports aids control. Regularly, the management of an entity measures actual performance of each employees with standards. Therefore, a actual performance report is periodically provided regularly and it is compared with standards. Control is enforced on any variation from actual performance and standard performance.

5. Periodic reports are also useful to researchers. In an effort to carry out data analysis, researchers in the field of accounting and finance needs the financial statements to be divided into periods. They also need accountants to present financial statements periodically at other times, when they need to carry out longitudinal analysis of a sets of financial reports.

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