Friday, September 25, 2009

Going Concern Entity Assumption

What is the Going Concern Accounting Assumption?

A company is considered viable and a “going concern” for the foreseeable future and it is assumed that its operations will not end.  Basically, the corporation looks like it will be going forward and assumes that there will be future revenue.  The assumption that entity will continue to remain in business is fundamental to accounting and is required for most calculations. The accounting equation expects a company to realize its assets at the recorded amounts. At the same time, the company should extinguish its liabilities in the normal course of its business.

If the going concern assumption turns out to be incorrect or untenable for a particular company,  then the methods prescribed by Generally Accepted Accounting Principles (GAAP) for accounting for various transactions would need to be adjusted. This would in turn then affect all the revenue for the year.

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