CA Foundation · Accounting · Theoretical Framework
A proprietor of Kapoor Hardware buys a laptop for personal use of his family using the firm's bank account. Which accounting concept requires that this be treated as drawings and not as a business expense?
The business entity concept is correct. It treats the firm and its proprietor as separate, so a personal purchase paid from business funds is the owner's drawings, not a business expense. Going concern, periodicity and money measurement do not address the separation of owner and business.
- ABusiness entity conceptCorrect
- BGoing concern concept
- CPeriodicity concept
- DMoney measurement concept
Explanation
The business entity concept treats the business as separate from its owner. A personal purchase paid from business funds is therefore a withdrawal by the owner, recorded as drawings, and it does not reduce business profit as an expense. The going concern concept deals with continuity of the business, not separation of owner and firm.
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