Can You Describe Going Concern Concept Of Accounting?

There are a number of accounting concepts and conventions that give basic assumptions about the economic environment in which accounting exists. These concepts include, but are not limited to, the Business Entity Concept, the Going Concern Concept, the Money Measurement Concept, the concept of Accounting Periodicity and the Historical Cost Concept.

• The Business Entity Concept. This is the idea that a business is separate and different to that of its owners. This concept can be applied to the whole organization or to just a part of it. A business is therefore considered separate from the owners, creditors, managers and employees.
• The Going Concern Concept. This the concept that an enterprise has an unlimited experience. An enterprise must be considered as continuing largely in its present form and with its present purpose. There may be some entities that are an exception to the concept. These are businesses that are primarily for a limited period.
• The Money Measurement Concept. An assumption that any accounting transaction that is carried out within a business is to be measured in money or money's worth. When a transaction is measured, it can be recorded in the business' books and the result of the business can be determined.
• The Concept of Accounting Periodicity. This is the concept that the determination of the income of the business can't be postponed until the end of the business. This means that all economic activities of the business must be recorded periodically. This accounting period can be referred to as the Accounting Year of Financial Year.
• The Historical Cost Concept. This concept requires all financial transactions to be recorded in the books at cost and not at market value. An asset is recorded at the price paid to acquire it and the cost is the basis of all subsequent treatment of the assets.

While these are not all of the concepts and conventions involved in accounting, they help to give a scope about accounting and finance as a whole.

According to this concept it is assumed that an entity is a going concern-which it will continue to operate for an indefinite time period, there is no intention to liquidate the particular business venture in the foreseeable future. On account of this concept, the accountant while valuing the asset does not take into account the sale value of assets. Moreover, he charges depreciation on fixed assets on the basis of their expected life rather than on their market values.    For example, suppose that a company has just purchased a three-year insurance policy for Rs. 45000. If we assume that the business will continue in operation for three years or more. We will consider the Rs. 45000 cost of insurance as an asset which provides services to the business over a three year period. On the other hand, if we assume that the business is likely to terminate in the near future, the insurance policy should be reported at its cancellation value i.e. The amount refundable upon cancellation.    Moreover, the concept applies to the business as a whole. When an enterprise liquidates a branch or one segment of its operations, the ability of the enterprise to continue as a going-concern is not impaired normally. The enterprise will not be considered as a going-concern when it has gone into liquidation.

It means business is continuing in future, it will not stop in near future. Its a ongoing process for future.