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Question
Under which accounting concept owner & firm are to be treated as two separate entities _______________.
Under which accounting concept owner & firm are to be treated as two separate entities _______________.
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Solution
The correct option is B Business Entity
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.
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.
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