going-concern principle

Definition

Basic accounting concept which assumes that a firm will continue to operate in the foreseeable future. The significance of this principle becomes apparent when the value of a running business is compared with the value of one being wound up ('gone concern'). The moment a business is declared being wound up (liquidated), all debts become immediately due in full, tangible assets are worth only what they will be sold for in an auction or fire-sale, and the intangible assets (such as goodwill) become worthless. A going concern is the only type of business banks lend money to, and suppliers extend credit to. Directors of publicly traded firms must explicitly state in their respective firm's financial statements (verified through an independent audit) that they have taken all reasonable steps to ensure the continuing viability of the firm as a going concern. Also called continuity of business unit principle.