Question

Question 24 2.6 pts Jason and Roy are partners in a business called "Bust Ruckets used car sales, inc." Jason has decided to Claim repair costs made on his personal residence as part of the business expenses to reduce overall profit margins. What Accounting principle was not followed in this example? Provide an explanation in your answer. HTML Editor BIYA - AIE 3 11 x x := 9. DO V en V B T 11 12pt Paragra

Answer 1

Answer :- They have not Followed following principle and Concepts:-

1) Business entity concept - This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. Thus, the business and personal transactions of its owner are separate. For example, when the owner invests money in the business, it is recorded as liability of the business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense. Thus, the accounting records are made in the books of accounts from the point of view of the business unit and not the person owning the business. This concept is the very basis of accounting

2) Economic entity principle. - This is the concept that the transactions of a business should be kept separate from those of its owners and other businesses. This prevents intermingling of assets and liabilities among multiple entities, which can cause considerable difficulties when the financial statements of a fledgling business are first audited.