The Daily Technical #75: Why are the values of a company's intangible assets not reflected on its balance sheet?

Good morning. Welcome to the 75th edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
What is the “going concern” assumption used in accrual accounting?

In accrual accounting, companies are assumed to continue operating into the foreseeable future and remain in existence indefinitely.

The assumption has broad valuation implications, given the expectation of continued cash flow generation from the assets belonging to a company, as opposed to being liquidated.

Common Mistakes

1. Confusing the "going concern" assumption with a company being profitable. To avoid this, remember that "going concern" means the company is expected to operate in the future, regardless of current profitability.

2. Overlooking how "going concern" impacts valuation. Always highlight that ongoing operations affect how assets are assessed and valued.

TL;DR

• "Going concern" assumes continuous, indefinite company operation.

• Valuations based on asset-generated cash flows, not liquidation.

• Essential for recognizing and recording revenue in accrual accounting.

TODAY’S QUESTION
Why are the values of a company's intangible assets not reflected on its balance sheet?

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THAT’S A WRAP
See you tomorrow,

Mike Lukasevicz
Founder @ HirePrep