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Theory Base of Accounting — Account STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceAccountTheory Base of Accounting3 Marks
Question
Explain the following:
Going Concern Concept.
✓

Answer

Going Concern Concept: The going concern concept of accounting implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason. A company is a going concern if no evidence is available to believe that it will or will have to cease its operations in foreseeable future.
Example: The application of going concern concept of accounting is the computation of depreciation on the basis of expected economic life of fixed assets rather than their current market value. Companies assume that their business will continue for an indefinite period of time and the assets will be used in the business until fully depreciated. Another example of the going concern assumption is the prepayment and accrual of expenses. Companies prepay and accrue expenses because they believe that they will continue operations in future.

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