Business Entity Concept

This concept treats the owner as totally a different entity from the business. To put in to
nutshell "Owner is different and Business is different". The capital which is brought
inside the firm by the owner, at the commencement of the firm is known as capital. The
amount of the capital, which was initially invested should be returned to the owner
considered as due to the owner; who was nothing but the contributory of the capital.
For e.g. Mr Z has brought a capital of Rs.1 lakh for the commencement of retailing
business of refrigerators. The brought capital of Rs. 1 lakh has utilized for the purchase
of refrigerators from the Godrej Ltd. He finally bought 10 different sized refrigerators.
Out of 10 refrigerators, one was taken away by the owner Mr. Z In the angle of the firm
The amount of the capital Rs.1 lakh has to be returned to the owner Mr. Z, which
considered to be as due. Among the 10 newly bought refrigerators for trading, one was
taken away by the owner for his personal usage. The one refrigerator drawn by the
owner for his personal usage led the firm to sell only 9 refrigerators. It means that Rs.
90,000 out of Rs. 1 Lakh is the volume of real capital and the Rs.10,000 worth of the
refrigerator considered to be as drawings; which illustrates the capital owed by the firm
is only Rs. 90,000 not Rs. 1 lakh. In the angle of the owner
The refrigerator drawn worth of Rs.10,000 nothing but Rs.10,000 worth of real capital
of the firm was taken for personal use as drawings reduced the total volume of the
capital of the firm from Rs.1 lakh to Rs. 90,000, which expected the firm to return the
capital due amounted Rs. 90,000.

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