FA – May 2018 – L1 – SA – Q18 – Accounting Concepts

Identifies the accounting concept violated when expenses are not charged in the correct period.

Question

What accounting concept is violated when N50,000 cost of electricity consumed during the first year of operation of a business was not charged as expense for the year?
A. Accrual
B. Materiality
C. Historical cost
D. Business entity
E. Prudence

Answer

Explanation:
Option D is correct because the business entity concept requires the separation of business transactions from the personal transactions of the owner. The failure to charge electricity expenses to the business during its operational year suggests that personal and business expenses were not properly distinguished, thereby violating the business entity concept.

Tags: Accounting Concepts, Financial Statements, Violations
Level: Level 1

Topic: Accounting Concepts
Series: MAY 2018

Uploader: Theophilus