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The Finance Book by Si Hussain, Stuart Warner

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25 Insolvency and going concern risk

‘Prudence is a rich ugly old maid, and her beau is Insolvency.’

William Blake poet, painter, printmaker

In a nutshell

Companies that meet their debt obligations as they fall due are termed ‘solvent’. Insolvency is a legal term used where a company is unable to repay the debts that it owes.

Going concern is an accounting concept used when preparing financial statements. It assumes that a company will continue to operate with no intention or need to stop trading.

Going concern and insolvency are interrelated because an insolvent company is not a going concern.

In the UK, the term insolvency should not be confused with bankruptcy. Bankruptcy is a term that applies to individuals whereas insolvency relates ...

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