The growing concern Assumption principle would a company be violating if it failed to disclose in its financial statements that it would be going out of business in the next year.
The going concern assumption is a basic accounting principle that indicates that an enterprise is financially stable enough to remain in business for the long term or at least after the next tax period.
A company is less likely to be liquidated. A business continues to operate using existing assets to meet its obligations to avoid bankruptcy. A company can generate profits in the future because it has no plan or obligation to liquidate them. A business is expected to be in business for at least one year.
The value of a supposedly operating business will be greater than the value of its dissolution. This is one of the key assumptions of generally accepted accounting principles (GAAP). The going concern assumption can also provide insight into a business for potential lenders or investors when viewing a company's financial statements.
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