The going concern principle is the assumption that a business will continue to exist in the near future, in other words, that it will not liquidate or be forced out of business. Stay on top of your financial activity by using an online invoicing software such as Debitoor. Sign up now! 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. Going concern is an important part of the generally accepted accounting principles. Without it, businesses would not be able to perform accrued or prepaid expenses.The going concern principle allows a business to defer some of their
prepaid expenses to future accounting periods, rather than recognising them all at once. Think about this: If we assume that a business will not be able to operate in the foreseeable future then why would we prepay or accrue anything? Well, if we assume the business might not operate long enough to realize these future expenses, then we would not prepay or accrue anything. The going concern principle provides some justification for accountants to follow the cost principle. If a company is a going concern, it has no intention to liquidate, so why should it report the current value of its long term
assets? Yet, if the value of an asset has been damaged or weakened, then the carrying amount of the asset could be reduced to an amount lower than its carrying value. An example showing the application of the going concern principle is the calculation of depreciation of assets. This depreciation calculation is based on the expected economic life
of the asset, as opposed to its current market value. Businesses assume that they will continue operating for an indefinite period of time, and that their assets will therefore be used in the business until they have fully depreciated. Accounting principles serve a significant purpose of standardising the way in
which businesses perform their financial reporting activities. It is important for all businesses to keep track of their financial statements, and ensure that they are correctly and efficiently drawn up. With Debitoor invoicing software you can instantly extract and download your financial statements at any point in time!The importance
of the going concern principle
Going concern and cost principle
The significance of accounting principles
Johnny's Car Repair Shop started the year with total assets of $60,000 and total liabilities of $40,000. During the year the business recorded $100,000 in car repair revenues, $55,000 in expenses, and dividends of $10,000.
The net income reported by Johnny's Car Repair Shop for the year was_____.
a. $35,000
b. $45,000
c. $20,000
d. $90,000
e. none of the options listed
If beginning capital was $25,000, ending capital is $37,000, and the owner's withdrawals were $23,000, the amount of net income or net loss for the period was:
a. net loss of $35,000
b. net income of $35,000
c. net income of $14,000
d. net loss of $14,000
e. none of the options listed
3-14Test Bank for Survey of Accounting, First Editionc.is in a growth industry.d.will remain in operation for the foreseeable future.Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting87.The economic entity assumption states that economic events
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88.The concept that a business has a reasonable expectation of remaining in business forthe foreseeable future is called thea.economic entity assumption.b.monetary unit assumption.c.periodicity assumption.d.going concern assumption.Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting
89.Which of the following isnotan accounting assumption?
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90.The periodicity assumption states that
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