going-concern principle

  

Definition

A basic principle in accounting that assumes a company 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 liquidated.

The moment a business is declared 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 companies must explicitly state in their financial statements (verified through an independent audit) that they have taken all reasonable steps to ensure the continuing viability of the company as a going concern. Also called continuity of business unit principle.


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