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Explanation
The going concern concept in accounting is a fundamental assumption that underlies financial reporting. It implies that when preparing financial statements, an organization is presumed to continue its operations indefinitely, at least for the foreseeable future, unless there is substantial evidence to the contrary.
Under the going concern assumption, assets are recorded at their historical cost or fair market value, and liabilities are recognized as they come due. This is because the assumption is that the company will have the opportunity to realize the value of its assets and settle its obligations in the ordinary course of business.
Imagine you have a lemonade stand, and you keep track of how much money you make and spend. Now, when you plan for the future, you assume that your lemonade stand will continue to operate for a while. You’re not thinking about closing it down anytime soon. This assumption is similar to what accountants do with businesses, just on a much larger scale
The going concern concept is like believing a business will keep running in the future, unless there’s good evidence that it won’t. It’s the starting point for all the money-related stuff that happens in a business and helps everyone understand its financial health.
Conclusion: The going concern concept is a foundational principle in accounting that assumes a company will continue to operate in the foreseeable future. It guides how financial statements are prepared and presented, with the objective of providing relevant and reliable information to users of those statements.