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Home Finance Accounting Going Concern Concept – Principles of Undertaking a Business with Foreseeable Future

Going Concern Concept – Principles of Undertaking a Business with Foreseeable Future

The going concern concept is the assumption that a business or accounting entity has an undetermined and limitless life span. It means that the enterprise fully intends to stay for the long haul and has no plans for liquidation or dissolution in the near future.

Graph With Stacks Of CoinsPHOTO BY FLICKR.COM/KENTEEGARDIN

Going Concern Concept- A Long Term View of Business

A business that is still around despite going through failures and different owners is a good example of going concern concept. Certain businesses have a high rate of continuance and are made useful for their advantages. One of the advantages of an enterprise with a going concern concept is the sound basis for measurement in terms of income and profit. Instead of logging business elements as expenses, they are deemed fixed assets because of such concept. It also classifies short term assets and long term liabilities. These are shown on record at cost or book values as opposed to market prices since they are not intended to be sold. They also attract investors because of the promise of longevity for the enterprise.

Going Concern Assumption- For Longevity and Better Value

The long term concept of the going concern assumption establishes the business’s future. This means that there is no view for a short term ending where the circumstances entail debts being paid off and resources being sold. Going concern assumption enables depreciation and amortization because of the long term view of the business. Under this idea, the assets of a business are valued at the original cost. This is definitely a much better deal than selling a short term business at their liquidated value which means the sales price minus disposal expenses. The assumption therefore provides better business value knowing that its financial activities will be in operation for a long period of time.

Going Concern Principle - Common Examples and Guidelines

It is essentially the auditors of a company that determines its adherence to the going concern principle. For a company to be a going concern,it must follow accounting standards that are generally accepted. To illustrate the difference between a company with this principle is a company to be nationalized but in dire financial trouble and is able to seek the help of the government through a guaranty of assistance with all its debt payments. Conversely, an example opposing the principle is a bank in a downward financial spiral having been refused help by the government, and is about to be liquidated by its Board of Directors.

Written by Simon Harris

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