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

Dividing the life of a business into specific periods is essential for effective measurement of performance through reporting and recording. The Accounting Period concept allows businesses to create financial statements at regular intervals, such as monthly, quarterly, or annually. This periodic reporting is critical because it provides stakeholders—including management, investors, and regulators—with timely information regarding the financial performance and position of the business.

By measuring performance within these defined time frames, businesses can assess how well they are achieving their financial goals, compare results across different periods, analyze trends, and make informed decisions for future operations. This structured approach enables businesses to have a consistent basis for evaluating their profitability and efficiency, facilitating better planning and adjustments based on performance outcomes.

In contrast, while determining tax obligations is an important consideration for businesses, it is not the primary reason for dividing the life of a business into accounting periods. Evaluating long-term strategies and assessing market conditions are also critical aspects of business management but are not directly tied to the fundamental necessity of the Accounting Period concept, which focuses specifically on performance measurement through systematic reporting.