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Business Entity Concept

This entity states that business is separate from its owners. The owners are treated as Financier eligible for profit or loss in the business. This enables the accountant to differentiate the transaction of the business and those of owners. If an owner withdraws money for personal use, it is recorded as Drawings.






Drawings a/c       Dr
To Cash a/c




i.e. From business point of view Cash goes out even though it is paid to the owner. Consequently there is a reduction in the Capital too. All the Transactions are recorded from the business entity point of view.

For e.g. Goods purchased form a Supplier.

From Business point of view - Purchases

From Supplier point of view - Sale.

So, it is recorded as Purchases and not as Sale.

This assumptions is acceptable for all organization such as Sole proprietorship, Partnership, Cooperative or Company

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