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Accounting concepts

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Sasi mcvv

73 Points Posted on 13 August 2020

how is going concern concept a limitation of financial statements?

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Quick Summary

The going concern concept in accounting doesn't limit financial statements; rather, it advises that a business operates for a foreseeable future, typically one year. Unlike the accruals concept, which allows for future transactions like deferred revenue, going concern focuses on the business's immediate viability and doesn't restrict the recognition of future sales.

yasaswi gomes

My grammar is 💯 good I

7306 Points Posted on 14 August 2020

It is not a limiting factor. This concept advises that a business is not a perpetual cash cow, but only till a foreseeable future I.e., one year. If you want to recognise a sale will happen after five years, under accruals concept you can book that transaction under deferred revenue. Hence, the going concern does not limit any transaction.