Author Question: Bob Johnson is the sole owner of Johnson's Carpet Cleaning Service. Bob purchased a personal ... (Read 108 times)

P68T · **on:** Jul 5, 2018

Bob Johnson is the sole owner of Johnson's Carpet Cleaning Service. Bob purchased a personal automobile for10,000 cash plus he took out a loan for 20,000 in his name. Describe how this transaction is related to thebusiness entity concept.

Question 2

Which of the following does not represent a common approach to budgeting expenditures?

A. Zero-base budgeting.
B. Object-of-expenditure budget.
C. Program budgeting.
D. Marginal increase budgeting.

carolinefletcherr · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

Under the business entity concept, economic data is limited to the direct activitiesof the business. The business is viewed as separate from its owner. Therefore,when Bob buys a personal automobile, it is not listed on the books of Johnson'sCarpet Cleaning, unless Bob invests it in the business. In this case, the loan is apersonal debt and not a liability of the company, and the cash is from Bob'spersonal account and not the company's account.

Answer to Question 2

D