Define the going concern assumption in accounting.

• A. It allows businesses to estimate future cash flows
• B. It assumes a company will continue to operate indefinitely
• C. It requires companies to discount future liabilities
• D. It mandates liquidation of assets for intensive review

Answer: (B)

The going concern assumption is a fundamental principle in accounting that posits that an entity will continue to operate for the foreseeable future and has the ability to meet its obligations as they come due. This assumption underlies how financial statements are prepared, as it allows accountants to record assets and liabilities under the premise that the company will not be forced to liquidate its assets in the near term.

By assuming that a company will continue to operate indefinitely, financial statements can reflect a long-term view of assets and liabilities, presenting a more accurate picture of the company’s financial health over time rather than just its immediate liquidity situation. This assumption affects how revenues and expenses are recognized and how assets are depreciated, providing a stable foundation for measuring a company's performance.

The other choices relate to different aspects of financial management or reporting that do not align with the specific definition of the going concern assumption. For instance, estimating future cash flows is an application of the going concern assumption but does not define it. Similarly, discounting future liabilities and liquidating assets indicate actions taken under specific circumstances and do not reflect the ongoing operational premise of the business that the going concern assumption embodies.