Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When recording the financial transactions of Ted's, Ted does not record an entry for a car he purchased for personal use. Ted took out a personal loan to pay for the car. What accounting concept guides Ted's behavior in this situation?
A) Pay back concept
B) Economic entity assumption
C) Cash basis concept
D) Monetary unit assumption

Question

Quizplus · Accepted Answer

The economic entity assumption states that the activities of the business are separate and distinct from the activities of the owner(s). Therefore, Ted should only record transactions that pertain to the business and not his personal transactions such as the purchase of a car for personal use with a personal loan.

Ted Leo Is the Proprietor (Owner) of Ted's, a Retailer