Going Concern, Cost and Dual Aspect Concepts

Going Concern Concept. It is assumed that a business will continue to operate for a foreseeable, indefinitely long period, and has neither the intention nor the necessity of closing down or drastically curtailing its operations. This is why fixed assets are recorded at cost and depreciated over their useful life rather than at their forced-sale (liquidation) value — a going concern is expected to use the asset, not sell it off tomorrow.

Cost Concept. An asset is recorded in the books at the price actually paid to acquire it (its historical cost), and this cost — not its rising or falling market value — forms the basis for all subsequent accounting, including depreciation. The cost concept is objective and verifiable (backed by an invoice), whereas a "current value" would depend on someone's opinion.

Dual Aspect Concept. Every transaction has two aspects — a giving aspect and a receiving aspect — and both must be recorded. This is the very foundation of the double entry system, and it can always be expressed as the Accounting Equation:

Assets = Liabilities + Capital …