Question

rohit, the propriter of M/S R.K. & Co. purchased an air conditioner and installed it at his residence. payment was made by issuing a cheque from the accountof M/S R.K. & Co. .the accountant debited the drawing account with the amount whereas Rahul is of the view that it should be debiyed to fixed assets. in your views who is correct and why?

Answer 1

Answer:

Rahul is correct, as he has paid for the air conditioner which will not include in Drawings and will be considered as fixed asst.

Explanation:

Answer 2

The accountant is correct because a business is separate from its owners.

• The concept used by the accountant here is the "Business entity concept"
• Under this concept, the business and its proprietor are treated as different persons and the business is its own separate entity. The accounting is done by keeping this concept in mind.
• Since Mr. Rahul bought the air conditioner from his company M/S R.K. & Co. and paid by issuing a check from the account of the company, it will be considered as "drawings".
• Because the air conditioner is for Mr. Rahul's personal use and the cheque is issued from the company's account, not his bank account, it will be debited to the "drawings account" not to the "fixed assets account".
• Hence, the accountant is right.