AI Tutor
Imagine buying a custom $100,000 delivery truck today, but knowing your business might shut down next month.
Should you report that truck at its normal multi-year value, or at the fire-sale price a scrapyard will pay tomorrow?

The Going Concern Assumption

The going concern concept assumes an entity will continue operating for the foreseeable future—defined in accounting standards as at least 12 months from the reporting date.
In the early 1900s, as long-term corporate manufacturing grew, accountants introduced this principle so companies would not have to record factory machinery at scrap prices every single year.
Why does this simple assumption shape every line on the balance sheet?

Valuation and Classification Rules

When going concern is valid, we record assets at their historical cost (original purchase price) and allocate their expense over time through depreciation (spreading an asset's cost over its working life).
It also justifies splitting items into non-current (held for more than 12 months) and current (settled within 12 months) categories, because there is no immediate pressure to sell long-term assets.
What happens when a company runs out of cash and cannot realistically survive the year?

When Going Concern is Compromised

If management spots significant risks but survival remains possible, they must disclose a material uncertainty in the financial statement notes.