Going Concern

Posted in Finance, Accounting and Economics Terms, Total Reads: 879
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Definition: Going Concern

Going Concern is a concept which assumes that a company will operate indefinitely without going out of business or liquidating its assets in the foreseeable future. Financial statements are prepared on this assumption only. In case a company intends to curtail its scale of operations or liquidate its assets in the near future, then financial statements are prepared on a different basis and going concern no longer applies. The stipulated period to be taken into consideration is usually 12 months.


When a Company is a going concern, then it has to follow the generally accepted accounting standards. Auditors of a company determine whether a company is a going concern or not at the date of the financial statements.


Example:

When a company is making losses and is unable to recover and no other company or body is willing to bail it out, in that case, the company is no longer a going concern.


When a loss making company is unable to pay back to its creditors, then the business can be liquidated on the request of the creditors to recover their debts which will lead to cancellation of the going concern idea of the company.

 

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