The sales manager of a firm has the use of a blue company-owned automobile to use to visit potential customers. The sales manager also owns her own identical car except that it is red. The manager paid for the red car with funds earned from her employment as sales manager. The firm will report the cost of the blue auto in its balance sheet, but not the red auto. This is an example of:
A) Reliability
B) Matching
C) Separate entity
D) Going concern
E) None of these answers are correct.

Question

Quizplus · Accepted Answer

This is an example of the separate entity assumption, which states that business transactions must be recorded separately from the transactions of its owner(s). The firm only reports assets that it owns, not those owned by individuals working for the firm. This assumption helps to ensure that financial statements provide an accurate portrayal of the financial position of the business.

The Sales Manager of a Firm Has the Use of a Blue