Stuart Allen Corporation manufactures computer hardware. The president of the corporation bought a new car as a gift for his daughter and paid for it using cash from the business. Since the corporation paid for the car, it was recorded in its books as an asset. Which of the following concepts or principles of accounting did the corporation violate?
A) monetary unit assumption
B) economic entity assumption
C) cost principle
D) going concern assumption

Question

Quizplus · Accepted Answer

The economic entity assumption was violated because this principle requires a clear distinction between the transactions of the business and its owners or other businesses. Recording a personal car purchase as a business asset mixes personal transactions with business transactions, which is against this principle.

Stuart Allen Corporation Manufactures Computer Hardware