Accounting Period, Matching and Realisation Concepts

Accounting Period Concept. Although a business is assumed to continue indefinitely (Going Concern), its life is artificially divided into shorter, uniform periods — usually one year — at the end of which financial statements are prepared. In India, the accounting year for tax purposes runs from 1st April to 31st March. This periodic reporting is what lets an owner, a bank or the tax department judge performance without having to wait for the business to actually close down.

Matching Concept. The expenses of a period must be matched against the revenue of the same period to correctly compute profit — not the expenses actually paid in cash during the period. This is exactly why year-end adjustments for outstanding expenses (incurred but not yet paid) and prepaid expenses (paid but relating to the next period) are made before profit is finalised. …