The primary aim of any business organization is to garner maximum profit with minimal costs associated. To ensure that profit level, it is imperative that a periodic calculation be taken into consideration.
Let us take an example. If a person invests Rs 10,000 in his business and gets in return a profit of Rs 1,00,000 then close to Rs 90,000 is to be taken as his profit. However, it can be very well seen that this figure is only received after a considerable time period and therefore it is only after receiving of this figure can decisions associated with further investments be made in this regard.
To create a better scenario and get immediate results associated with financial estimate and investment of a company, it is imperative that period of garnering the amount of money and checking out of benefits or losses are shortened.
According to Companies Act and Banking Regulation Act, accounting period is to be ideally kept at 12 months to get correct view of the financial estimates of that company.