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The Time Period Concept

The time period concept requires that financial reporting take place over specified periods of time known as fiscal periods. The time period concept implies that the economic activities of an enterprise can be divided into artificial time periods of equal length (typically a year), and we do this to make financial reporting meaningful: we can compare the financial reports of the business from one period to the next, and measure the financial progress of the business. 

According to FASB Concept Statement No. 5, a full set of financial statements for a period should show:
     a. The business's financial position at the end of the period
     b. Earnings for the period
     c. Comprehensive income for the period
     d. Cash flows during the period
     e. Investments by and distributions to owners during the period.1 

The time period concept is related to comparability, one of the enhancing qualitative characteristics of financial reporting. Comparable means that information can be compared between reporting entities for the same period, or for information from the same reporting entity but from different periods. Comparability is aided by consistency; that is, when the same accounting methods are used either between entities or for one entity between different periods.

If we didn't have the time period concept, we wouldn't be able to seperate and aggregate accounting information into financial statements for artificial time periods, and wouldn't be able to compare information between different periods, or between firms. 


1. FASB CON5-1

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