CA Foundation · Accounting · Theoretical Framework
A firm records the transactions of a business separately from the personal transactions of its owner, even though the owner has invested his own money in the business. Which accounting concept is being applied by treating the business as having its own identity?
The business entity concept is applied. It treats the business as a unit separate from its owner, so only business transactions are recorded and the owner's investment appears as capital owed by the business to the owner.
- ABusiness entity conceptCorrect
- BGoing concern concept
- CDual aspect concept
- DMoney measurement concept
Explanation
The business entity concept treats the business as separate from its owner for accounting purposes. The owner's capital is therefore shown as a liability of the business to the owner. Going concern relates to continuity, dual aspect to the equality of debits and credits, and money measurement to recording in monetary terms.
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