Chapter 3, Problem 1MC

That a business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally, is known as which of the following?

A. separate entity concept

B. monetary measurement concept

C. going concern assumption

D. time period assumption

To determine

Concept introduction:

A. General Accounting Principles	General Accounting Principles are policies, assumptions and guidelines for preparing financial statements.
B. Measurement (Cost) Principle	Measurement (Cost) Principle uses the actual cost to record the transaction.
C. Business Entity assumption	Business Entity assumption assumes that business has a separate entity than its owner (s).
D. Revenue Recognition Principle	Revenue Recognition Principle states that the revenue should be recorded only when the product and services are sold and delivered.
E. Specific Accounting Principle	Specific Accounting Principle is rules used in reporting events and transactions.
F. Matching Principle	Matching Principle requires the recording of the expenses with respect to the revenue earned for a particular period.
G. Going Concerns Assumption	Going Concerns Assumption assumes that the business will continue operating.
H. Full Disclosure Principle	Full Disclosure Principle requires the disclosure of items in the financial statement using the notes to the financial statement behind the financial statement.

To choose:

The accounting assumption that says that the business can report in the financial statements only the activities related to business and not personal

Answer to Problem 1MC

Separate entity concept

Explanation of Solution

Explanation for correct answer:

The Separate entity Concept says that the business can report in the financial statements only the activities related to business and not personal. Hence the correct option is A.

Explanation for incorrect answers:

B. The Separate entity Concept says that the business can report in the financial statements only the activities related to business and not personal. Hence this option is incorrect.

C. The Separate entity Concept says that the business can report in the financial statements only the activities related to business and not personal. Hence this option is incorrect.

D. The Separate entity Concept says that the business can report in the financial statements only the activities related to business and not personal. Hence this option is incorrect.