The Going Concern Concept

The Going Concern Concept

 

The going concern concept is also known as concept of continuity.It is one of the concept which is considered for recording business transactions.

In accounting,a firm will continue to carry on its business activities for an indefinite period of time which is known as going concern concept.Therefore,the going concern concept does not mean permanent continuity of a firm.It means that the firm will continue long enough to carry out the present plans and also meet future obligations.However,this concept enables the preparation of financial statements viz statement of profit and loss and balance sheet on a yearly basis because it is presumed that the firm will have a longer life than one year.

Revenue and capital expenditures are easily differentiated with the help of going concern concept.Since a firm is assumed to have a long life,those expenditures whose benefit will end within a year like electricity,rent etc are treated as revenue expenditures while those expenditures whose benefit will get for number of years like building,plant and machinery etc are treated as capital expenditure.

However,in the absence of going concern concept a firm will continue for a short period and all expenses will be treated as revenue expenditures.And there will be no difference between capital expenditure and revenue expenditure.It is because of going concern concept the assets are classified as fixed assets to be used for more than one year and current assets to be used only for a year.Similarly liabilities are classified as long term and short term liabilities.Therefore,every business enterprise is treated as a going concern that is it has a continuity of life and the necessity will not arise of dissolving the firm in the foreseeable future.

 
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