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6. The owner of Westhampton Fish Eatery purchased a new car for his daughter who is away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in the restaurant's balance sheet. The reporting of this item in this manner violated the: * (1 Puan) Cost principle. Going-concern assumption. Objectivity principle. Business entity concept
Expert Solution
6. Answer: Business entity concept
As per the business entity concept, the proprietor of a business and the business are two separate entities. Therefore, the transactions of the proprietor should be separated from the transactions of the business. Any amount coming from the proprietor into the business is categorized as Capital, and any amount taken out by the proprietor from the business is categorized as Drawing / Withdrawals.
In the given situation, since the car was purchased for the owner's daughter, the amount of $ 43,000 should have been debited to the Drawings account, and not to Delivery Vehicle account.
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