Which accounting concept is violated if a company records personal expenses of the owner as business expenses?

• A. Accrual Concept
• B. Business Entity Concept
• C. Consistency Concept
• D. Going Concern Concept

Answer: (B)

Verified step by step guidance

1. Understand the Business Entity Concept: This concept states that the business and its owner are separate entities. Transactions and expenses of the business should be recorded separately from the personal transactions of the owner.
2. Identify the violation: If a company records personal expenses of the owner as business expenses, it violates the Business Entity Concept because it mixes personal and business transactions.
3. Review the other concepts for clarity: The Accrual Concept relates to recognizing revenues and expenses when they are incurred, not when cash is received or paid. The Consistency Concept ensures that accounting methods are applied consistently over time. The Going Concern Concept assumes the business will continue operating in the foreseeable future.
4. Eliminate irrelevant concepts: Since the issue is about mixing personal and business transactions, the Accrual, Consistency, and Going Concern Concepts are not applicable in this scenario.
5. Conclude the correct concept: The violation pertains specifically to the Business Entity Concept, as it ensures the separation of personal and business financial activities.