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    Violation of accounting principle

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    According to the below situation, would you please state which principle or assumption has been violated, and explain what should be done so that the accounting treatment is in compliance with the generally accepted accounting principles or assumptions.

    The managing director of Lucky Company Ltd., a private company, uses the company as his personal piggy bank; that is, the company pays for all expenditures incurred by the managing director, whether or not they relate to company business. The director defends this by stating: I own 100% of the shares of the company, so what's wrong in using the company's money in whatever way I like?

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    Solution Preview

    The principle violated is the entity principle. The entity principle states that the business and owners are separate entities and the ...

    Solution Summary

    The solution explains which accounting principle is violated in the given situation.