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What is the "going concern" principle?

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Quick Answer

The "going concern" principle refers to the treatment of a business entity by auditors, assuming the business will remain operational for the foreseeable future. The auditors use this principle to defer the recognition of expenses to a later date.

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Full Answer

For a business entity to qualify for a going concern status, it must not exhibit indicators such as defaulting on its loans or incurring significant trading losses for several years. Other negative indicators include rising levels of short-term overdrafts that are not supported by operational growth. Legal proceedings may also indicate that an entity is no longer a going concern or will likely transition away from being one.

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