Definition Definition

Time period assumption

Definition (1):

A convenient assumption that accountants can break down the economic life of a business into artificial periods of time is called the time period assumption. This assumption is also known as the periodicity assumption.

For instance, management generally prefers monthly financial statements; and the Internal Revenue Service obligates all businesses for filing annual tax returns. Then accountants break down the economic life of a business into artificial time periods for their convenience.

Definition (2):

The time period assumption is also called the accounting time period concept. It states that a business’s life can be divided into equal periods of time. These periods of time are called accounting periods for which businesses generate their financial statements. Different internal and external users of Accounting use these financial statements.

The accounting period’s length to be applied for the generation of financial statements is based on the requirement and nature of every business and the requirement of the financial statements’ users. Generally, an accounting period includes a year, six months, or a quarter.

Definition (3):

In Accounting, the time period assumption allows a business’s functions to be broken down into informal time periods to produce financial information that different users can use for making decisions.

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