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Question
Recording of capital contributed by the owner as liability ensures the adherence to principle of __________.
Recording of capital contributed by the owner as liability ensures the adherence to principle of __________.
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Solution
The correct option is C Separate entity of business
According to the Business Entity Concept, a business is treated as a separate legal entity and is distinct from it's owner. When a proprietor introduces capital in his own business, the capital is considered as liability from a business point of view. Similarly, when he withdraws any money for his personal use, it is treated as reduction in liability of the business. This concept is applicable to all types of businesses i.e. sole proprietary concern, Partnership firm, Joint stock company, etc.
According to the Business Entity Concept, a business is treated as a separate legal entity and is distinct from it's owner. When a proprietor introduces capital in his own business, the capital is considered as liability from a business point of view. Similarly, when he withdraws any money for his personal use, it is treated as reduction in liability of the business. This concept is applicable to all types of businesses i.e. sole proprietary concern, Partnership firm, Joint stock company, etc.
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