Which of the following statements best describes the accounting concept of going concern?
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The going concern principle is the assumption that a business will continue to exist in the near future, in other words, that it will not liquidate or be forced out of business. Stay on top of your financial activity by using an online invoicing software such as Debitoor. Sign up now! As an
accounting principle, the going concern principle serves as a guideline which allows readers of a business’s financial statements to assume that the business will continue to operate long enough to carry out its current obligations, objectives and commitments. Going concern is an important part of the generally accepted accounting principles. Without it, businesses would not be able to perform accrued or prepaid expenses.The going concern principle allows a business to defer some of their
prepaid expenses to future accounting periods, rather than recognising them all at once. Think about this: If we assume that a business will not be able to operate in the foreseeable future then why would we prepay or accrue anything? Well, if we assume the business might not operate long enough to realize these future expenses, then we would not prepay or accrue anything. The going concern principle provides some justification for accountants to follow the cost principle. If a company is a going concern, it has no intention to liquidate, so why should it report the current value of its long term
assets? Yet, if the value of an asset has been damaged or weakened, then the carrying amount of the asset could be reduced to an amount lower than its carrying value. An example showing the application of the going concern principle is the calculation of depreciation of assets. This depreciation calculation is based on the expected economic life
of the asset, as opposed to its current market value. Businesses assume that they will continue operating for an indefinite period of time, and that their assets will therefore be used in the business until they have fully depreciated. Accounting principles serve a significant purpose of standardising the way in
which businesses perform their financial reporting activities. It is important for all businesses to keep track of their financial statements, and ensure that they are correctly and efficiently drawn up. With Debitoor invoicing software you can instantly extract and download your financial statements at any point in time!
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Which of the following statements best describes the concept of going concern?Which ONE of the following statements best describes the term 'going concern'? The correct answer is 2. See para 4.1 of the Framework . Entities may have sufficient reserves to continue in the face of losses or negative net current assets.
What is the concept of going concern in accounting?The going concern concept is a fundamental principle of accounting. It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets and continue to meet its financial obligations.
Which of the following is the definition of the going concern assumption?The going concern assumption is a fundamental accounting principle that a company is financially stable enough to stay in business in the long term or at least beyond the next fiscal period. Other characteristics include: A company has fewer chances of being liquidated.
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