Question

Which of the following describes the accounting principle of going concern?

1) assumes that the business will survive for the foreseeable future
2) required for every accounting transaction, whenever possible
3) involves recording, classifying, and summarizing transactions in order to prepare reports
4) requires that all events that would make a difference to the user of a financial report be accounted for

Answer 1

The principle of going concern in accounting assumes that a business will continue operating in the foreseeable future, allowing it to defer certain expenses to later periods.

Step-by-step explanation:

The accounting principle of going concern is reflected in the first option: it assumes that the business will survive for the foreseeable future. This principle implies that the business will not be forced to halt operations and liquidate its assets at fire-sale prices suddenly. Because of this assumption, companies are justified in deferring the recognition of certain expenses to future periods when the company is still expected to be operational. This is contrasted with a situation where a business is facing liquidation, in which case a different basis of accounting might be used.