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6.1 Liquidation basis of accounting: Chapter overview
Publication date: 01 Aug 2021 (updated 30 Jun 2023)
us Bankruptcy & liquidation guide
Most businesses are formed and managed with the intent of operating as ongoing entities. The preceding chapters in this guide generally focus on bankruptcy as a mechanism to allow a business with financial difficulties to reorganize so that it can be viable again as a going concern. However, a business can reach a point where the best result for its stakeholders is for the reporting entity to cease operations, liquidate its assets, and settle its obligations, with any remaining resources distributed to its owners. Liquidation may be a voluntary decision based on economic conditions, a defined event for a limited-life entity, or an involuntary act brought about by an entity’s creditors, the Court or other parties. Although the causes vary, Figure BLG 6-1 presents the more common reasons for liquidation.
Figure BLG 6-1Reasons for liquidation
Voluntary | Involuntary |
Business model can no longer be sustained
| Chapter 7 bankruptcy
|
Purpose of the entity no longer relevant
| Other creditor actions
|
Entity designed to operate for a finite period
| Court-ordered liquidation
|
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