Mr.Switch, a local business man, owns two different businesses-a lumber sawmill and a restaurant.The price of lumber has declined and therefore sawmill is in financial difficulty.However, the restaurant is thriving, and Mr.Switch would like to start paying two of the sawmill employees under the restaurant's payroll.His accountant explains that this is not in accordance with certain basic principles in accounting.Which principle is he referring to?
A)Full disclosure
B)Periodic-reporting assumption
C)Entity concept
D)Unit-of-measure assumption

Question

Quizplus · Accepted Answer

The principle being referred to is the entity concept, which states that a business is a separate entity from its owner and should be accounted for separately. By paying the sawmill employees under the restaurant's payroll, Mr. Switch would be blurring the lines between the two separate entities and violating this principle.

MrSwitch, a Local Business Man, Owns Two Different Businesses-A Lumber