Financial Accounting

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?

The principle violated is the entity principle. The entity principle states that the business and
owners are separate entities and the business is only responsible for business transactions and
not for owner transactions.
The company should segregate the transactions of the business and the transactions of the
owner. The transactions incurred by the owner for business purpose should be recorded in the
books of the business. All cash paid for transactions for the owner should be recorded as
owner withdrawals and should not be recorded as an expense for the business.