CSEET · Fundamentals of Accounting · Accounting Process

Anita, the proprietor of Anita Garments, takes goods costing Rs 5,000 from the shop for her family's use and makes no entry. Which concept is violated, and what is the effect on the business profit?

The business entity concept is violated and profit is overstated. The owner is separate from the business, so goods taken for personal use must be recorded as drawings. Without it, the Rs 5,000 outflow of stock is not accounted for and profit appears higher.

ABusiness entity concept; profit is overstatedCorrect
BGoing concern concept; profit is understated
CMatching concept; profit is understated
DCost concept; profit is overstated

Explanation

The business and its owner are separate entities, so goods taken by the owner must be recorded as drawings, reducing purchases or stock. Without an entry, the cost Rs 5,000 remains in the cost of goods sold calculation as if still held or sold, so closing stock or purchases is overstated and profit is overstated. Hence the business entity concept is violated and profit is overstated.

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Anita, the proprietor of Anita Garments, takes goods costing Rs 5,000 from the shop for her family's use and makes no entry. Which concept is violated, and what is the effect on the business profit?

Explanation

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