Question
Explain the following:
Business Entity Concept.

Answer

Business Entity Concept: According to the Business Entity Principle, business is considered to be separate from its owners. Business transactions are recorded in the books of account from the business point of view and not from that of the owners. Owners being regarded as separate from business are considered as creditors of the business to the extent of their capital. Their account with the business is credited with the capital introduced and profit earned during the year, etc., and debited by the drawings made. For example, when the proprietor introduces capital, Cash Account or Bank Account is debited and Capital Account is credited. Amount in the credit of the capital is a liability of the enterprise towards the proprietor. This principle applies to every form of enterprise including proprietorship firms.

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Similar questions

What is a Ledger?
Calculate the due dates of the bills in the following cases:
 
Date of the Bills
Period
I.
1st February, 2017
2 months
II.
31st January, 2017
3 months
III.
30th September, 2017
2 months
IV.
30th September, 2017
3 months
V.
29th December, 2017
2 months
VI.
31st December, 2017
2 months
VII.
15th July, 2017
30 days
VIII.
27th January, 2016
1 month
Following balances appeared in the books of Ram & Shyam on January 1, 2017:
Assets: Cash in hand ₹ 30,000; Stock ₹ 36,000; Lal Chand ₹ 7,600; Mukesh Khanna ₹ 16,200; Furniture ₹ 8,000.
Liabilities: Ghanshyam ₹ 6,000; Vinod ₹ 8,000.
Following transactions took place during Jan. 2017:
2017
 
Jan. 2
Purchased Typewriter for ₹ 7,500
Jan. 4
Sold goods for Cash of the list price of ₹ 25,000 at 20% trade discount and 5% Cash discount
Jan. 6
Sold goods to Gopal Seth for ₹ 10,000
Jan. 8
Gopal Seth returned goods for ₹ 1,500
Jan. 12
Purchased goods from Arun ₹ 12,000, and from varun ₹ 15,000
Jan. 13
Settled Arun's account in full after deducting 5% for cash discount
Jan. 14
Paid cash to Ghanshyam in full settlement of his account
Jan. 16
Received ₹ 7,500 from Lal Chand in full settlement of his account
Jan. 17
Purchased a Scooter for office use ₹ 18,000
Jan. 20
Sold goods for cash 20,000
Jan. 22
Received from Gopal Seth ₹ 4,850 and discount allowed ₹ 150
Jan 27
Paid for Wages ₹ 7,000 and Salaries ₹ 3,000.
Jan. 28
Withdrew goods for ₹ 2,000 and Cash ₹ 1,500 for private use
Jan. 29
Paid for Life Insurance Premium of the Proprietor ₹ 1,600
Journalise the above transactions, post them into Ledger, balance them and prepare a Trial Balance.
Open a 'T' shape account for machinery and put the following transactions on the proper side:
S.No
 
i
Machinery purchased
40,000
ii
Machinery sold
10,000
iii
Machinery purchased
8,000
iv
Machinery discarded
14,000
v
Depreciation on machinery
1,000
What is the reason that the capital expenditure is shown in the Balance Sheet?
On which side the increase in the following accounts will be recorded? Also mention the nature of account:
  1. Furniture
  2. Rent Paid
  3. Commission Received
  4. Salary Paid
  5. Proprietor's Account
  6. Debtor
  7. Creditor
Total of the purchase invoices recorded in the Purchases Book is posted to debit side of the Purchases Account in the Ledger and credited to the accounts of suppliers. Do you agree? Give reasons.
Mohan, the owner of a business receives an order for supply of goods worth ₹ 2,00,000. He has also received ₹ 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?
Depreciation cannot be provided in case of loss in a financial year. Comment.
Give two examples of compensating errors.