Definition of Going Concern
The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to carry out its commitments, obligations, objectives, and so on. In other words, the company will not have to liquidate or be forced out of business. If there is uncertainty as to a company’s ability to meet the going concern assumption, the facts and conditions must be disclosed in its financial statements.
Additional Comments
The going concern assumption provides logic for the cost principle. If a company is a going concern (and therefore liquidation is not relevant), reporting its long term assets at cost is sufficient and there is no need to report the long term assets at their current values or liquidation values? (An exception to cost exists when a long term asset’s value has been impaired.)
