A corporation reports the sale of some of its shares to a shareholder in its financial statements, and the shareholder reports the same transaction as an investment. Therefore,
A) the revenue recognition principle has been violated.
B) the separate entity assumption has been violated.
C) the double entry accounting concept has been violated.
D) no accounting concept has been violated.

Question

Quizplus · Accepted Answer

No accounting concept has been violated. The corporation and the shareholder can report the same transaction from their respective perspectives in accordance with the concept of duality of transactions, which is an essential part of the double entry accounting system. The revenue recognition principle and the separate entity assumption are not relevant to this situation.

A Corporation Reports the Sale of Some of Its Shares