Question

With reference to an accounting assumption, explain why assets and liabilities need to be classified into current and non-current:

A) Consistency, for financial reporting purposes
B) Materiality, for accurate valuation
C) Going Concern, for assessing liquidity
D) Accrual Basis, for cash flow management

Answer 1

Assets and liabilities need to be classified into current and non-current due to the going concern assumption in accounting.

Step-by-step explanation:

Assets and liabilities need to be classified into current and non-current due to the going concern assumption in accounting. This assumption posits that a business is anticipated to persist in its operations for the foreseeable future. By classifying assets and liabilities into current and non-current, a business can assess its liquidity and determine if it has enough current assets to cover its current liabilities.