According to the Accounting Period concept, why must the life of a business be divided into periods?

The Accounting Period concept requires that the life of a business be divided into periods primarily to measure performance through reporting and recording. This periodic division allows businesses to prepare financial statements that reflect their financial status and performance over specific intervals, such as monthly, quarterly, or annually. By doing so, stakeholders, including management, investors, and creditors, are able to assess the financial health and operational efficiency of the business over time. This systematic reporting enables comparisons across different periods, helping to identify trends, analyze growth, and evaluate the success of financial strategies.

The emphasis on measuring performance is crucial; it enables a business to track income, expenses, and profitability effectively, informing decision-making processes regarding resource allocation and operational adjustments. This structured approach to recording financial information ensures transparency and accountability, providing a clear picture of how the business is performing at any given time.