Periodicity assumption

Periodicity Assumption

The accounting concept that a company’s economic activities can be divided into artificial time periods for financial reporting purposes, allowing for meaningful period-to-period comparisons.

For instance, a retail business prepares monthly financial statements to monitor seasonal sales patterns, quarterly statements for management analysis, and annual statements for tax and external reporting purposes.

The periodicity assumption necessitates allocations and estimates for transactions spanning multiple periods, such as depreciation, prepaid expenses, and accruals. While businesses operate continuously, this assumption enables stakeholders to evaluate performance at regular intervals rather than waiting until business cessation.