Inclusion of personal expenses of using car in the business expenses would violate the concept of __________.

Question

Q.

___ represents revenue, expenses and financial result of a business entity.

Answer 1

In accounting,business organization and owners are two different identify. Thus business has its own existence separate from owners, creditors etc. This concept is called business entity concept. It means that personal transactions of owners are treated separately from those of the business.

Answer 2

Therefore any personal expenses incurred by owners of a business will not appear in the income statement of the entity. It has to be considered as drawings and to be deducted from capital.