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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Gupta, a proprietor in Kanpur, takes goods costing Rs 12,000 from his shop for his family's use and makes no entry. Which concept is violated, and what is the correct entry?

The business entity concept is violated. Goods taken for personal use are the owner's drawings, so the entry is debit Drawings Rs 12,000 and credit Purchases Rs 12,000. This separates the owner's private affairs from the business's records.

  1. ABusiness entity concept; debit Drawings Rs 12,000 and credit Purchases Rs 12,000Correct
  2. BGoing concern concept; debit Drawings Rs 12,000 and credit Capital Rs 12,000
  3. CMatching concept; debit Sales Rs 12,000 and credit Drawings Rs 12,000
  4. DPrudence concept; debit Purchases Rs 12,000 and credit Drawings Rs 12,000

Explanation

The business is a separate entity from its owner, so goods taken for personal use are drawings. The entry is Drawings A/c Dr 12,000 to Purchases A/c Cr 12,000, reducing the purchases. The other options reverse the entry or use unrelated concepts.

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