Question

a. How does the time period assumption affect an accountant's analysis of business transactions?

b.Explain the terms fiscal year, calendar year, and interim periods.

Answer 1

a. Time period assumption is one of the basic principles in accounting. It helps to analyse business performance across the period of time. Transactions that occur within a specific period can be compiled and analysed to produce useful information. Example, Revenue and expense within a period can be analysed to calculate net income. A balance sheet is independent of time however income statement, cash flow statement and retained earnings are recorded across time . Even the adjusting entries rely on the time period. Eg prepaid expenses will be apportioned on the time principles. Accounting principles like revenue recognition place importance on the timing of the revenue. The principle states that revenue should be recognized in the accounting period in which it is earned.

b. Fiscal year or financial year is a period for which financial statements will be prepared and is one year in duration.

A calendar year is a fiscal year which begins January 1 and ends on December 31. Going by the name itself, the calendar year follows the calendar starting in January and ending in December.

Interim periods are shorter period compared to Fiscal/Calendar year ,i.e, less than one year in duration. These can be monthly, quarterly or semi-annually.