Caren Cosmos sold t-shirts online and deposited the earnings in her personal account. Which key accounting assumption did she overlook?

The key accounting assumption that Caren Cosmos overlooked is the Separate Entity Assumption. This principle states that the financial activities of a business must be kept separate from the personal financial activities of its owner. By depositing her business earnings into her personal account, Caren fails to maintain this separation, which can lead to complications in tracking her business’s financial performance and liabilities. Proper adherence to the Separate Entity Assumption is essential for producing accurate financial statements and for sound financial management. This separation helps in understanding the true profitability and financial health of the business without personal expenses or income mixing in, ensuring clarity and accountability.