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Entity and Going Concern Concept Video Lecture - Commerce

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FAQs on Entity and Going Concern Concept Video Lecture - Commerce

1. What is the entity concept in accounting?
Ans. The entity concept in accounting refers to the principle that a business is considered a separate entity from its owner(s). This means that the financial transactions and records of the business should be kept separate from the personal finances of the owner(s). The entity concept ensures that the business's financial position and performance can be accurately measured and reported.
2. How does the entity concept affect financial reporting?
Ans. The entity concept affects financial reporting by requiring businesses to maintain separate accounting records for their business activities. This means that the assets, liabilities, revenues, and expenses of the business are recorded and reported separately from the personal assets, liabilities, revenues, and expenses of the owner(s). By following the entity concept, financial statements can provide a clear and accurate picture of the business's financial performance and position.
3. What is the going concern concept in accounting?
Ans. The going concern concept in accounting assumes that a business will continue to operate indefinitely unless there is significant evidence to the contrary. This means that when preparing financial statements, accountants assume that the business will continue to operate and fulfill its obligations in the foreseeable future. The going concern concept allows businesses to present their financial statements on the basis of their ongoing operations rather than liquidation or cessation.
4. How does the going concern concept impact financial statement preparation?
Ans. The going concern concept has a significant impact on financial statement preparation. It requires businesses to assess their ability to continue operating and meet their financial obligations within at least the next twelve months. If there are any doubts about the business's ability to continue as a going concern, this information must be disclosed in the financial statements. The going concern concept ensures that financial statements provide relevant and reliable information to users for decision-making purposes.
5. What happens if a business is not considered a going concern?
Ans. If a business is not considered a going concern, it means that there are substantial doubts about its ability to continue operating in the foreseeable future. In this case, the financial statements may need to be prepared on a different basis, such as liquidation or cessation. If a business is not a going concern, it is crucial for the financial statements to disclose this information so that users can understand the potential impact on the business's financial position and performance.
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