a)Going Concern Concept

Normally, the business is started with the intention of continuing it indefinitely or at least for the foreseeable future. The investors lend money and the creditors supply goods and services with the expectation that the enterprise would continue for long. Unless there is a strong evidence to the contrary, the enterprise is normally viewed as a going (continuing) concern. Hence financial statements are prepared on a going concern basis and not on liquidation (closure) basis.

Certain expenses like rent, repairs, etc., give benefits for a short period, say less than one year. 

But the benefit of some other expenditure like purchase of a building, machinery, etc., is spread over a longer period. The expenditure whose benefit is limited to one accounting year is fully charged to the Profit and Loss Account of the year.

But the cost of the items whose benefit is available for a number of accounting years, their cost must be spread over a number of years. Hence only a portion of such expenditure is charged to the Profit and Loss Account every year. The balance is shown in the Balance Sheet as an asset. Let us take an example.

Suppose a firm purchased a delivery van for Rs. 60,000 and its expected life is 10 years. It means the business will use the van for a period of 10 years. So, the accountant has to spread the cost of the van over 10 years. He would charge Rs. 6,000 (1110 of its cost) every year to the Profit and Loss Account in the form of depreciation, and show the balance in the Balance Sheet as an asset. 

b)Accounting Period Concept

You know the going concern concept assumes that the business will continue for a long period, almost indefinitely. But the businessmen cannot postpone the preparation of financial statements indefinitely. Therefore, he prepares them periodically. This will also enable other interested parties such as owners, investors, creditors, tax-authorities to make periodic assessment of its performance.

So, the life of the business enterprise is divided into what are called 'accounting periods'. The profit or loss and the financial position at the end, of each such accounting period is regularly assessed. Conventionally, duration of the accounting period is twelve months. It is called an 'accounting year'. 

Normally, the final accounts are prepared at the end of each accounting year. The Profit and Loss Account is prepared for the year so as to ascertain the profit earned or loss incurred during that year, and the balance sheet is prepared as at the end of the year, so as to show the financial position as on that date. However, for internal management purposes, accounts can be prepared even for shorter periods, say monthly, quarterly or half yearly.