The Going Concern or Continuity Assumption Is Critical to Financial

question 123

Multiple Choice

The going concern or continuity assumption is critical to financial accounting. The assumption

• A) Is always maintained for all firms for all years.
• B) Supports the use of historical cost valuation for assets rather than market values.
• C) Means that a corporation has a definite ending date.
• D) Requires that we immediately expense prepaid accounts because they do not represent a future cash inflow.

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Definitions:

Allowance Method

A method in accounting used to estimate bad debts expense by anticipating which accounts receivable may not be collected.

Balance Sheet Accounts

Accounts reported on the balance sheet, representing the company's assets, liabilities, and equity at a specific point in time.

Direct Write-off Method

An accounting method where bad debts are charged against income at the time they are determined to be uncollectible, rather than being estimated and accounted for in advance.

Allowance for Doubtful Accounts

An estimation of the amount of credit sales that are expected not to be collected, representing a reserve for potential bad debts.