Question

The CEO of a business owns a home and two automobiles. The company the CEO works for also owns automobiles and a home in a remote area used for strategic planning meetings by its executives. Which principle or assumption "draws a sharp boundary" around the possessions of the CEO and the assets of the business for which he works?

a) Going-concern assumption
b) Entity assumption
c) Objectivity assumption
d) Stable-monetary-unit assumption

Answer 1

The entity assumption is the accounting principle that separates the possessions of a CEO from the assets of the business, keeping an individual's personal assets distinct from the company's financial records.

Step-by-step explanation:

The principle that "draws a sharp boundary" around the possessions of the CEO and the assets of the business for which he works is known as the entity assumption. This accounting principle states that the business is separate from its owners and other businesses, meaning that the personal assets and liabilities of the owner (such as the CEO's home and automobiles) are not included on the company's financial statements. The entity assumption is fundamental in accounting as it ensures that the business's records are kept distinct from those of its owners or any other individual or entity.