In some cases, the parties in interest to the bankruptcy determine that the best option for the creditors is to liquidate the debtor. This liquidation may be performed under Chapter 7 or Chapter 11 of the Bankruptcy Code, and the process is subject to the Court's approval and overview, as described in BLG 1. Additionally, after a sale of substantially all of the reporting entity's assets, or a portion that represents a majority of the entity's value, the reporting entity should consider whether the adoption of the liquidation basis of accounting is necessary for the remaining entity. As mentioned earlier, the bankruptcy accounting guidance in ASC 852-10, Reorganizations, does not include entities in liquidation.

BLG 6 discusses accounting considerations for the liquidation basis of accounting in greater detail.