Final answer:
The continuity assumption in accounting asserts that a business will continue its operations indefinitely, reflecting an expectation of long-term sustainability rather than an intention to cease operations or frequently change its scope.
Step-by-step explanation:
The continuity (going-concern) assumption in accounting refers to the presumption that a business will continue its operations indefinitely, rather than ceasing operations or frequently changing the nature of its operations. This assumption means that the financial statements are prepared with the expectation that the business will continue to operate, and it does not intend to liquidate or significantly reduce the scale of its operations. Therefore, the correct answer to the question is: Assumes that a business will continue operations indefinitely.
While businesses indeed operate in the short run, they also plan for and operate in the long run. Despite the risk of losses and potential exit decisions, businesses strive for long-term sustainability and growth, leveraging their ability to adapt and evolve in a competitive environment. It's critical for businesses to consider both short-term operations and long-term viability to ensure their enduring success.