At the time of preparing accounting books, one assumption is made that the business will be continued for unlimited time period and it will not be closed in the near future. Because of this reason, the owner of the business cannot maintain the accounts of the business for an unlimited time period. Even if the business is to continue for a long period, it is necessary to know the results of the business at the end of a specific time period. Thus, the whole life of the business is divided into specific time intervals.

Generally, such accounting period is kept for one year. The reason for taking the accounting period as one year is that all types of transactions of the business are covered in this period. A period of one year comprises all seasons and therefore all types of seasonal transactions are covered. Accounting year may be the calendar year, or from 1st April to 31st March or Kartak Sud 1 to Aso Vad, but for income tax purposes the accounting year is kept from 1st April to 31st March.

At the end of every accounting year, a Profit and Loss Account and a Balance Sheet has to be prepared. The Profit and Loss Account shows the annual results and a Balance Sheet shows the financial position of the business. Many times the accounts are also prepared monthly, quarterly or half-yearly. The accounting records are useful to the owner of the business, creditors of the business, lending institutions, banks, government offices, etc.

Periodicity concept is related to going concern concept. For internal users of financial statements, this accounting period could be of a month or a quarter also.