| Business entity | |
| This concept is the very basis of accounting. This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. |
| The business and personal transactions of its owner are separate. |
| the accounting records are made in the books of accounts from the point of view of the business unit and not the person owning the business |
| For example, when the owner invests money in the business, it is recorded as liability of the business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense but treated as drawing reducing the liability of the firm towards the owner. |