The assumption that the entity will continue to operate long enough to fulfill obligations; any contrary evidence must be reported in financial statements

The assumption that the entity will continue to operate long enough to fulfill obligations; any contrary evidence must be reported in financial statements

• A. Going Concern Principle
• B. Asset Turnover Ratio
• C. Principal
• D. Contract

Answer: (A)

Going concern is the assumption that a business will continue to operate for the foreseeable future. Because of this, financial statements are prepared on the premise that the entity will not liquidate and will be able to fulfill its obligations in the normal course. If there is substantial doubt about the entity’s ability to continue, that contrary evidence must be disclosed in the notes to the financial statements, and may lead to changes in how assets and liabilities are reported. This concept underpins why the statement says any contrary evidence must be reported. The other terms describe unrelated ideas: asset turnover measures efficiency, principal is a term with various meanings, and a contract is an agreement.

Going concern is the assumption that a business will continue to operate for the foreseeable future. Because of this, financial statements are prepared on the premise that the entity will not liquidate and will be able to fulfill its obligations in the normal course. If there is substantial doubt about the entity’s ability to continue, that contrary evidence must be disclosed in the notes to the financial statements, and may lead to changes in how assets and liabilities are reported. This concept underpins why the statement says any contrary evidence must be reported. The other terms describe unrelated ideas: asset turnover measures efficiency, principal is a term with various meanings, and a contract is an agreement.