"Firms live forever." Explain with reference to the concept of accounting.

The statement "Firms live forever" is based on the Going Concern Concept of accounting. It is assumed that a business will continue to exist for an indefinite period of time and that there is neither the intention nor the necessity to wind up its affairs in the near future. Transactions are recorded on this assumption.

This assumption has important implications: (a) fixed assets are recorded at original cost less depreciation rather than at market value, since they are not meant to be sold in the near future; (b) a distinction is made between capital expenditure and revenue expenditure; (c) outsiders are willing to enter into long-term contracts with the firm; and (d) existing liabilities are assumed to be paid at maturity, while unsold stock is carried over to the next year.