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Definition
Going concern
Going concern is an important accounting principle that assumes a business will continue operating in the foreseeable future and has no intention or need to liquidate or significantly curtail its operations. This assumption underlies the preparation of financial statements, allowing assets to be recorded at cost rather than liquidation value.
When accountants prepare financial reports under the going concern assumption, they assume the business will meet its obligations, generate income, and continue normal operations for at least the next 12 months. This principle supports long-term planning, accurate asset valuation, and consistency in financial reporting.
However, if there are significant doubts about a company’s ability to continue operating—due to financial losses, cash flow problems, or legal issues—management and auditors must disclose these uncertainties in the financial statements. In severe cases, the company may need to prepare its financials using a liquidation basis of accounting.
The going concern principle reassures investors, creditors, and other stakeholders that the business is stable and viable. It also influences decisions such as lending, investing, and strategic planning.
In summary, the going concern assumption is fundamental in accounting, as it supports the idea that the business will remain in operation, fulfilling obligations and pursuing growth over time.
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