Question

The allocation of owner's private expenses to his/her business violates which of the following?

• A. Accrual concept
• B. Matching concept
• C. Separate business entity concept
• D. Consistency concept

Answer 1

The correct option is C Separate business entity concept

Separate entity concept assumes that, the firm and its owner are two separate legal entities. Owner of the business is considered as creditors in the books of the firm. Hence, the capital contributed to the business is considered as liability.
Accordingly, if any personal expenses are incurred, those should be debited to the personal account of owner (capital account).

Private expense debited to the business account is a violation of separate entity concept.