Businesses usually intend to operate for long term, but they are supposed to prepare and present financial statements periodically. Based on the requirements of internal and external users, these financial statements can be for any specified period, such as for a month, quarter, half year, or annual financial statements. Regardless of the length of reporting period, the time period principle requires that financial statements of a business are prepared for specific period of time.
For the clarity of users of the financial statements, it is imperative that financial statements clearly show the period to which they relate, for instance, financial statements for the year ended 31 December 20xx, or financial statements for the three months ended 31 March 20×1 etc.
This principle is further linked to two more accounting principles namely, revenue recognition principle and matching principle. As the financial statements are prepared for a specific period, revenue recognition principle requires an entity to record complete revenue which relates to that accounting period. Similarly, matching principle deals with recording all the expenses in the income statement for that accounting period which are incurred to earn the reported revenue. Combination of time period principle, revenue recognition principle and matching principle aims to achieve more accurate reporting of financial information to the users of the financial statements.