Business entity concept: It is one of the main accounting
principle of accounting this concept says that Business
should be treated seperately from the properitor or investor
In simple words owner of the business should be treately
sepreatly from the business what ever profits come in to
the business should be taken in company account.
In accounting the separate entity concept treats a business
as distinct and completely seprate from the owners. It is
necessary to record the business transactions separately to
distinguish it from the owner's personal transactions. This
concept is now extended to accounting for various divisions
of a firm in order to ascertain results for each division.
As mentioned in the previous posts that the business should
be considered different drom the sole properioter or the
owner of the business but the thing which we need to c here
is that why?????
the simple reason being that when we talk about the company
its not only the money of the properoiter but also the
money of those shareholders which are a liability towards
so a properoiter cannot use the mony which is invested in
the company and if it happens then these transactions
should be properly posted in the books of accounting
It is treated seperate from its owner.On the basis of this
concept the proprietor is treated as a creditor for the
businnes,and it appears on the liability side of balance
sheet.Thus this concept thus requires to make a distinction
between (1)personal transactions and (2)business
This is the basic and fundamental concept
This concept implies that a business unit is separate and distinct from the person who supply capital to it. Irrespective of the form of organization,a business unit has got its own individuality.In law,the distinction between the owners and the business is drawn only in the case of joint stock company but in accounting this distinction is made in the case of sole trade and partnership firm as well.
How does the rendering of services on account affect the
accounting equation? a. Liabilities increase; stockholder’s
equity decreasesb. Assets increase; liabilities increase c.
Assets decrease; stockholder’s equity increases d. Assets
increase; stockholder’s equity increases