Business Entity and Money Measurement Concepts

Business Entity Concept. The business is treated as an entity separate and distinct from its owner(s). The owner's personal assets, liabilities and transactions never enter the business's books, and any amount the owner brings in or takes out is recorded as if the business were transacting with an outsider — capital introduced is a liability the business owes the owner, and drawings reduce that liability. This concept is what makes it possible to measure the profit or loss of the business separately from the owner's personal financial affairs, and it is the reason capital is shown on the liabilities side of the Balance Sheet. …