What is the belief that the company will not go out of business in the near future?

What is the Going Concern Principle? The going concern principle is the assumption that an entity will remain in business for the foreseeable future. Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.

What is the going concern principle?

Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy.

What is the difference between historical cost principle and fair value principle?

Fair Value – Key Differences. Historical cost is the transaction price or the acquisition price at which the asset acquired, or transaction was done, while fair value is the market price that a property can fetch from the counterparty.

What is the going concern assumption quizlet?

is the assumption about financial information that the entity will continue as normal into the foreseeable future.

Is going concern a business risk?

Business risks include risks that could reduce the company’s profit and/or cash inflows, and could ultimately mean that either a company is not a going concern, or that there are significant doubts over its ability to continue as a going concern.

Why Is going concern important?

The concept of going concern is crucial to shareholders because it demonstrates the stability of the entity. This assumption can affect the stock price of the business and their ability to raise capital or draw in more investors.

Is going concern an assumption or principle?

The going concern concept is a key assumption under generally accepted accounting principles, or GAAP. It can determine how financial statements are prepared, influence the stock price of a publicly traded company and affect whether a business can be approved for a loan.

Which of the following statements about the going concern assumption are true?

The correct answer is B. The going concern concept assumes that the business will continue for the foreseeable future.

What is economic entity assumption?

In accounting, an economic entity is one of the assumptions made in generally accepted accounting principles. … The “Economic entity assumption” states that the activities of the entity are to be kept separate from the activities of its owner and all other economic entities.

What is the opposite of going concern?

A going concern is a company that is currently operating and is also making a profit. … A company that is not a going concern has gone bankrupt and liquidated its assets. The opposite of a going concern or profitable company may also be an unprofitable company.

What is going concern in financial accounting?

The concept of going concern is an underlying assumption in the preparation of financial statements, hence it is assumed that the entity has neither the intention, nor the need, to liquidate or curtail materially the scale of its operations.

Why is it called going concern?

It’s an accounting term, that’s relatively recent (~500 years). It’s literally a “concern” about the company’s ability to “go” on. A going concern. It could also reference the concerns that are ongoing – namely operational concerns – that need to be addressed.

Why is the going concern assumption an important consideration in understanding financial statements?

As an accounting principle, the going concern principle serves as a guideline which allows readers of a business’s financial statements to assume that the business will continue to operate long enough to carry out its current obligations, objectives and commitments.

What is periodic assumption?

The periodicity assumption states that an organization can report its financial results within certain designated periods of time. This typically means that an entity consistently reports its results and cash flows on a monthly, quarterly, or annual basis.

What is doctrine of conservatism?

In accounting, the convention of conservatism, also known as the doctrine of prudence, is a policy of anticipating possible future losses but not future gains. … In accounting, it states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be selected.

How do auditors determine going concern?

The auditor’s evaluation of whether there is a substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time (not to exceed one year beyond the balance sheet date) is based on his or her knowledge of relevant conditions and events that exist at, or occurred before, …

How do you assess the going concern of a company?

The responsibility to assess the going concern of a company lies with its management. In order to assess the going concern of a company, its management will need to make judgements related to its future. When making these judgements, the management must take into account all available information about the future.

What means GAAP?

Generally Accepted Accounting Principles
The standards are known collectively as Generally Accepted Accounting Principles—or GAAP. For all organizations, GAAP is based on established concepts, objectives, standards and conventions that have evolved over time to guide how financial statements are prepared and presented.