Commingling of funds is the failure to use:

• A. Separate accounts for business and personal transactions
• B. Proper inventory valuation methods
• C. Internal control procedures for cash disbursements
• D. Accrual basis accounting

Answer: (A)

Verified step by step guidance

1. Understand the concept of commingling of funds: Commingling refers to the improper mixing of business and personal funds, which can lead to difficulties in tracking financial transactions and compliance issues.
2. Identify the correct practice to avoid commingling: Businesses should maintain separate accounts for business and personal transactions to ensure clear financial records and accountability.
3. Evaluate the incorrect options: Proper inventory valuation methods, internal control procedures for cash disbursements, and accrual basis accounting are important practices but are unrelated to the concept of commingling of funds.
4. Relate the concept to financial accounting principles: Keeping separate accounts aligns with the principle of entity assumption, which states that a business's financial activities should be distinct from the owner's personal financial activities.
5. Apply this understanding in real-world scenarios: Ensure that all business transactions are recorded in the business account and personal transactions in the personal account to maintain accurate financial records and avoid legal or tax complications.