A shop owner buys a personal house using personal funds. How should this transaction normally appear in the shop's accounting records?
Correct answer: D. It is not recorded in the shop's books
- A. It is recorded as a shop expense
- B. It is recorded as shop property
- C. It is recorded as shop revenue
- D. It is not recorded in the shop's books
Explanation
The business entity concept separates the business from its owner. A house bought personally with personal funds is not a transaction of the shop and is therefore excluded from its books.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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