Definition of Periodicity
Periodicity is an accounting assumption made by accountants so that a company’s complex and ongoing activities can be divided up into annual, quarterly, and monthly amounts that will be reported on the respective financial statements.
Periodicity allows companies to report meaningful financial statements covering relatively short periods of time.
Periodicity is also known as the time period assumption.
Examples of the Periodicity Assumption
An earth-moving equipment manufacturer may require two years to build a special machine for one of its customers. Periodicity allows the manufacturer to divide the manufacturing costs of the machine into the 24 monthly periods covered by the contract.
Periodicity also allows the manufacturer to report the revenues and net income it earned in each of the months during the two-year contract.
