Simple English definitions for legal terms
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Going concern is a fancy accounting term that means a business is doing well and can keep going for a long time. If a company is not a going concern anymore, it has to tell everyone on its financial statements. This is different from businesses that are being sold or broken up.
Definition: Going concern is a term used in accounting to describe a business that is financially stable and can operate with the expectation of indefinite existence. If a company is no longer considered a going concern, it must disclose specific information on its financial statements. In bankruptcy law, going concerns are distinguished from businesses that are being liquidated or broken into smaller entities.
Example 1: ABC Company has been in business for 20 years and has consistently made a profit. It has a strong customer base and a good reputation in the industry. Based on these factors, ABC Company is considered a going concern.
Example 2: XYZ Company has been struggling financially for the past year. It has been losing money and has had to lay off employees. If XYZ Company cannot turn its financial situation around, it may no longer be considered a going concern.
These examples illustrate the concept of going concern by showing how a company's financial stability and ability to continue operating indefinitely are important factors in determining whether it is a going concern or not. In Example 1, ABC Company's long history of profitability and strong reputation indicate that it is likely to continue operating successfully in the future. In Example 2, XYZ Company's recent financial struggles suggest that it may not be able to continue operating indefinitely if it cannot improve its financial situation.