Accounting principles and Policies
2. Going Concern or Continuity Assumption:
The Going Concern Concept is the basic idea the business will continue for a long time, followed by all accountants, while recording and reporting the business transactions. As per this concept, unless otherwise known it is assumed that the firm is a going concern and its business will continue for an indefinite time. A firm is said to be a going concern, if there is neither intention nor necessary to wind up the affairs of business or substantially curtail the scale of its operation. It is due to this concept that:
Proper distinction is made between capital and revenue expenditure
Assets are classified into current assets and fixed assets,
Liabilities are classified into short-term liabilities and long term liabilities,
Use its fixed Assets till the end of their useful life,
Carry forward (Defer) expenses or income to future years. (Expenses useful for 2 or 3 years are taken as deferred revenue expenditure),
Repay its long-term loans,
Expenses useful for many years are treated as fixed assets, to be written off, not in the year of purchase, by way of depreciation over its useful life.
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