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

Question

Quizplus · Accepted Answer

The economic entity assumption requires that the financial transactions of an individual or entity be kept separate from the personal transactions of the owner. In this situation, Ted purchased a car for personal use and took out a personal loan to pay for it, which is not representative of the financial transactions of Ted's as a business entity. Therefore, recording the transaction in Ted's financial records would not adhere to the economic entity assumption.

Ted Leo Is the Proprietor (Owner) of Ted's, a Retailer