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This a MCQ (Multiple Choice Question) based practi
ce test of Chapter 2- Theory Base of Accounting of Accountancy of Class XI (11) for the quick revision/preparation of School Board examinations
Q According to which accounting principle personal expenses of proprietor are recorded in drawings account.
a)Money measurement
b)Matching
c)Prudence
d)Business Entity Concept
Correct answer is option 'D'. Can you explain this answer?
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This a MCQ (Multiple Choice Question) based practi... morece test of C...
According to business entity concept business is different from owners and it is treated as a separate unit or entity apart from owners. Personal expenses of proprietor will be recorded in drawings because it may be an expenses which relate to business entity .So the correct answer is d
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**Business Entity Concept:**
The business entity concept is one of the fundamental principles of accounting. It states that the business entity is separate and distinct from its owners or proprietors. This means that the financial transactions and activities of the business must be recorded and reported separately from the personal finances of the proprietor.
**Drawings Account:**
When the proprietor withdraws funds from the business for personal use, it is recorded in a separate account called the drawings account. This account is used to track the withdrawals made by the proprietor and is deducted from the owner's equity section of the balance sheet.
**Recording Personal Expenses:**
According to the business entity concept, personal expenses of the proprietor should not be mixed with the business transactions. Therefore, when the proprietor incurs personal expenses, such as personal groceries, vacations, or utility bills, they are not recorded as business expenses. Instead, these personal expenses are recorded in the drawings account.
**Example:**
Let's say the proprietor of a business withdraws $1,000 from the business bank account to pay for personal expenses. The journal entry to record this transaction would be as follows:
**Drawings Account** (debit) $1,000
**Cash Account** (credit) $1,000
This entry shows that the proprietor has withdrawn $1,000 from the business for personal use, reducing the owner's equity in the business.
**Purpose of Separating Personal Expenses:**
Separating personal expenses in the drawings account allows for accurate reporting of the financial position and performance of the business. It ensures that the financial statements reflect only the transactions related to the business and not the personal transactions of the proprietor.
By recording personal expenses in the drawings account, the financial statements provide a clear picture of the business's profitability and financial health. It also enables proper tax reporting and compliance with accounting standards and regulations.
**Conclusion:**
The accounting principle that dictates the recording of personal expenses of the proprietor in the drawings account is the Business Entity Concept. This principle ensures that the financial transactions of the business are separate from the personal finances of the proprietor, allowing for accurate reporting and analysis of the business's financial position and performance.
The business entity concept is one of the fundamental principles of accounting. It states that the business entity is separate and distinct from its owners or proprietors. This means that the financial transactions and activities of the business must be recorded and reported separately from the personal finances of the proprietor.
**Drawings Account:**
When the proprietor withdraws funds from the business for personal use, it is recorded in a separate account called the drawings account. This account is used to track the withdrawals made by the proprietor and is deducted from the owner's equity section of the balance sheet.
**Recording Personal Expenses:**
According to the business entity concept, personal expenses of the proprietor should not be mixed with the business transactions. Therefore, when the proprietor incurs personal expenses, such as personal groceries, vacations, or utility bills, they are not recorded as business expenses. Instead, these personal expenses are recorded in the drawings account.
**Example:**
Let's say the proprietor of a business withdraws $1,000 from the business bank account to pay for personal expenses. The journal entry to record this transaction would be as follows:
**Drawings Account** (debit) $1,000
**Cash Account** (credit) $1,000
This entry shows that the proprietor has withdrawn $1,000 from the business for personal use, reducing the owner's equity in the business.
**Purpose of Separating Personal Expenses:**
Separating personal expenses in the drawings account allows for accurate reporting of the financial position and performance of the business. It ensures that the financial statements reflect only the transactions related to the business and not the personal transactions of the proprietor.
By recording personal expenses in the drawings account, the financial statements provide a clear picture of the business's profitability and financial health. It also enables proper tax reporting and compliance with accounting standards and regulations.
**Conclusion:**
The accounting principle that dictates the recording of personal expenses of the proprietor in the drawings account is the Business Entity Concept. This principle ensures that the financial transactions of the business are separate from the personal finances of the proprietor, allowing for accurate reporting and analysis of the business's financial position and performance.
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This a MCQ (Multiple Choice Question) based practi... morece test of Chapter 2- Theory Base of Accounting of Accountancy of Class XI (11) for the quick revision/preparation of School Board examinationsQ According to which accounting principle personal expenses of proprietor are recorded in drawings account.a)Money measurementb)Matchingc)Prudenced)Business Entity ConceptCorrect answer is option 'D'. Can you explain this answer?
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