Bob Jones owns a small business as a sole proprietor One day

Bob Jones owns a small business as a sole proprietor. One day he used the company debit card to fill up the gas tank in his wife’s car that was not used for business purposes. Using a debit card takes money out of his bank account immediately. He told his bookkeeper to record a debit for the $40 charge to the account “Auto Expense” and to record the credit to Cash.

1) What account should the gas have been debited to?

2) What account would be credited?

3) What accounting concept has been violated? (Hint: Check your vocabulary matching exercise in the Week 1 Assignment.)

4) How will this transaction affect the income statement for this month?

5) Do you think this is ethical? Why or why not?

Solution

1) Drawing account should the gas have been debited to

2) Ben\'s Bank account would be credited

3) Reliability accounting concept has been violated because these could be not verified with the reliable objective evidence

4) This transaction affect the income statement for this month because will decrease the net profit of the business

5) In my opinion it is unethical because financial statements do not portray a true record of transactions