PRC-1 · Chapter 1 · Question 3 of 100
Mr. Salman, the owner of a retail store, withdrew Rs. 50,000 from the business bank account to pay for his son's personal school fees. The separation of this personal transaction from business expenses is dictated by which accounting principle?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Business entity concept
Explanation
The business entity concept requires that a business and its owner are treated as completely separate and distinct entities for accounting purposes. Therefore, personal withdrawals are treated as drawings rather than business expenses.
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