Stuart Allen Company manufactures computer hardware.The president of the company bought a new car as a gift for his daughter and paid for it using cash from the business.Since the company paid for the car,it was recorded in its books as an asset.Which of the following concepts or principles of accounting did the company 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 company's transactions to be separate from those of its owners or other businesses. By purchasing a personal car for the president's daughter with company funds and recording it as a company asset, Stuart Allen Company blurred the lines between personal and business transactions.

Stuart Allen Company Manufactures Computer Hardware