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Question

Business is treated as an entity separate from its owners, creditors, managers and others. This is as per _________________.


A
Money measurement
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B
Business Entity Concept
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C
Going Concern Concept
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D
Dual Aspect Concept
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Solution

The correct option is D Business Entity Concept
The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. 
Here, one separate entity (owner) is assumed to be giving money to another distinct entity (business unit). 
Similarly, when the owner withdraws any money from the business for his personal expenses(drawings), it is treated as reduction of the owner’s capital and consequently a reduction in the liabilities of the business.

Principles and Practice of Accounting

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