Mel Green is the proprietor (owner) of Green's, a retailer of athletic apparel. When recording the financial transactions of Green's, Mel does not record an entry for a car he purchased for personal use. Mel took out a personal loan to pay for the car. What accounting assumption guides Mel's behaviour in this situation?

Question

Quizplus · Accepted Answer

The economic entity concept guides Mel's behavior in this situation because it requires that the business transactions be kept separate from the personal transactions of the owners. Mel's purchase of a car for personal use, therefore, is not recorded in the financial records of Green's.

Mel Green Is the Proprietor (Owner) of Green's, a Retailer