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What is going concern and consistency concept?

Answer» The going concern concept\tIt is one of the most fundamental concepts\tIt forms the assumption on which all accounting operations are carried out\tAccording to this concept all accounting transactions must be recorded and reported with the assumption that the business will continue to operate for the foreseeable future\tIt is assumed that the business will keep Fixed Assets and Current Assets as well as\tLiabilities\tit is assumed that the entity will realize its assets and settle its obligations in the normal course of the business\tIf this changes assets should be recorded at their Net realizable value instead of at costThe consistency concept\tDue to the nature that a number of transactions can be treated in a number of alternative ways\tIt is possible to constantly create a favorable set of financial statements simply by changing the way these items are created\tFor example depreciation can be accounted for using either the straight line and reducing balance method\tA business may be tempted hop from method to method depending on which method enhances it’s profit for example\tThe consistency concept prevents this from happening\tIt dictates that once the business adopts an accounting principle or method, it must continue to follow it consistently in future accounting periods\tAny change in accounting policies/principles must be disclosed\tThis ensures consistent accounting records are comparable from period to period


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