Question
Explain the following concept:
Business Entity Concept.
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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|
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₹
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i.
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Manu started business with cash
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50,000
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|
ii.
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Bought furniture for
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500
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iii.
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Purchased goods on credit
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4,000
|
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iv.
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Sold goods on cash (cost ₹ 500) for
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700
|
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v.
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Received rent
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200
|
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vi.
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Purchased goods for cash
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1,000
|
| vii. | Withdrew for personal use | 700 |
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| ix. | Paid for salaries | 200 |
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