Under the going concern concept in financial accounting, financial statements are prepared on the basic assumption that:
AThe business will liquidate within the current fiscal year
BThe business will continue operational existence for the foreseeable future
CAll assets will be immediately converted into cash value
DThe owner's personal wealth is tied directly to the firm
Explanation
• The Going Concern Concept assumes that an enterprise will operate indefinitely without intention or necessity of liquidation or drastic downscaling.
• This assumption justifies recording long-term assets at historical cost less accumulated depreciation rather than liquidation values.
• If going concern status is impaired, financial statements must be prepared on a liquidation/break-up basis.
Exam Relevance
- Topic: Financial Accounting
- Subtopic: Accounting Concepts
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