Which accounting principle assumes that a company will continue to operate for the foreseeable future?

• A. Materiality principle
• B. Going concern principle
• C. Historical cost principle
• D. Conservatism principle

Answer: (B)

The correct answer is the going concern principle, which asserts that a company is expected to continue its operations into the foreseeable future without any intention or necessity of liquidation or significantly reducing its scale of operations. This principle underpins the preparation of financial statements, allowing for the assumption that assets will be utilized and liabilities will be settled in the normal course of business.

By adopting the going concern principle, accountants can apply accounting methods that reflect the long-term viability of the company, such as deferring certain expenses and recognizing revenue on an accrual basis. This principle is foundational to the financial reporting framework, as it influences various accounting policies and estimates regarding the company’s assets and liabilities.

The other principles listed serve different functions: the materiality principle emphasizes that only significant information should be included in financial statements to avoid overwhelming users; the historical cost principle mandates that assets be recorded at their purchase price rather than their current market value; and the conservatism principle guides accountants to choose methods that minimize the overstatement of income or assets. Each of these principles plays a role in financial reporting, but none directly relate to the ongoing operational assumption inherent in the going concern principle.