Going Concern Concept In Accounting with example

Going Concern Concept In Accounting with example 

It is assumed that the business unit has reasonable expectation of continuing business at a profit for an indefinite period of time A business unit is deemed to be a going concern and not a gone concern It will continue to operate in future .Transaction are recorded in the books of keeping in view the going concern aspect of the business unit.It is because this concept that suppliers supply goods and services and other business firms enter into business transaction with the business unit.Supplier will not supply goods and services and other person will not have business dealing with the business entity. If they have the feeling that the concern will be liquidated .This assumption provides much of the justification for recording fixed assets at original cost and depreciating them in a systematic manner.

Point to be remember

  • This concept is also known as continuity of activity.
  • Business activity will continue at least for a span of time necessary to meet its present contractual obligations and to cover the original cost of its fixed assets during their commercially useful life.
  • According to international accounting standard the enterprise is normally viewed as a going concern that is as continuing in operation for the foreseable future.
  • It is viewed that the enterprise has an intention to be carried on for longer period.
  • It is binding upon every accountant to treat business activity as continuing process and recorded transaction accordingly.

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