Q. Explain about Accrual basis and periodicity?
Accrual basis and periodicity demonstrated that financial statements more accurately reflect the financial status and operations of a company when prepared under the accrual basis rather than the cash basis of accounting. Under the cash foundation we record revenues when cash is received and expenses when cash is paid. Under the accrual basis though we record revenues when services are rendered or products are sold and expenses when incurred.
The periodicity assumption needs preparing adjusting entries under the accrual basis. With no the periodicity assumption a business would have merely one time period running from its inception to its termination. After that the concepts of cash basis and accrual basis accounting would be irrelevant for the reason that all revenues and all expenses would be recorded in that one time period and would not have to be assigned to artificially short periods of one year or less.