Which principle states that transactions should be recorded as if the company will continue in operation?

• A. Principle of Periodicity
• B. Principle of Continuity
• C. Principle of Prudence
• D. Principle of Method

Answer: (B)

The going concern principle is in play here. It assumes the business will continue operating for the foreseeable future, so financial statements are prepared on that basis. This means assets are valued in a way that reflects ongoing use, such as recording them at cost and allocating that cost over their useful lives through depreciation, and recognizing liabilities as obligations that will be settled in the normal course of business. Under this assumption, revenues and expenses are matched over time to show the ongoing performance of the company.

If the company were not expected to continue, asset values and the approach to liquidation would be different, which is why the going concern idea is the key concept for recording transactions as if the company will keep operating.

The other choices don’t capture this ongoing-operating assumption. Periodicity is about dividing time into reporting periods; prudence is about conservatism in recognizing items; and a method principle isn’t the idea behind assuming ongoing operation.