What is the periodicity assumption?

The periodicity assumption is an accounting guideline that allows an accountant to divide up the complex, ongoing activities of a business into set periods of time. The periodicity assumption is also known as the time period assumption.

As business activities are fluid, a system had to be introduced to allow for reports to be made in a period of time defined by the calendar, using sometimes arbitrary cutoff dates, such as the week, month or quarter. The alternative is to wait for the activity being measured to cease and then carry out a final accounting. This is not practical for business owners, the stockholders or lenders.