Accounting Period Concept    

Since the going concern concept assumes that the entity continues its operations indefinitely, the income of the business can be accurately measured by comparing the assets of the company at the time of commencement of business with the assets at the time of liquidation. But the information made available after liquidation will render the information useless for decision-making and too late to take a corrective action. In order to confront this limitation, and to provide useful and timely information to the users of the financial statements, the business period is split up into a convenient shorter period of time called the accounting period.

The accounting period for the preparation of financial statements generally comprises a period of twelve months. Very often the accounting period chosen is a calendar year (January 1 to December 31) or a fiscal year (April 1 to March 31). It is also not uncommon to synchronize one's accounting period with one's operating period. In some businesses such as trading, the operating period may be relatively short, say a month or even less; while in other cases it may stretch well beyond a year. Depending on one's nature of business, one may adopt either a Hindu year, or the period beginning with Diwali or any other period as one's accounting period. Under the Companies Act, a company is normally not permitted to have an accounting period extending beyond fifteen months. For the purpose of Income tax, Financial year is considered as accounting period.