Why it is necessary for accountants to assume that business entity will remain a going concern?

 Answer: It is important for accountants to assume Going Concern as it leads them to adopt the other business concepts and assumptions such as Accrual Concept. The Going Concern concept. There are three fundamental accounting assumptions. The very first assumption is Going Concern which means members may come and members may go but the company will continue forever. Business is carried on with an intention of continuing it in long run and not for immediate closure. This basic assumption is essential for other assumptions and principles to be adopted. If going concern assumption is not made, then there is no room for Accrual concept or consistency in accounting. There will be no depreciation accounting etc.



Banks will not be interested in lending to an entity which is expected to close its operations in the near future. If a company is about to close in near future, the treatment will be different. For example assets will be stated at market value instead of cost. Hence the assumption of Going Concern is very important for a business entity.

Mayank Rai

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