AccountingBlog(Theory)

(a) Entity concept: Entity concept states that business enterprise is a separate identity apart from its owner. Accountants should treat a business as distinct from its owner. Business transactions are recorded in the business books of accounts and owner’s transactions in his personal books of accounts. The practice of distinguishing the a airs of the business from the personal a airs of the owners originated only in the early days of the double-entry book-keeping. This concept helps in keeping business a airs free from the in uence of the personal a airs of the owner. This basic concept is applied to all the organizations whether sole proprietorship or partnership or corporate entities. Entity concept means that the enterprise is liable to the owner for capital investment made by the owner. Since the owner invested capital, which is also called risk capital, he has claim on the pro t of the enterprise. A portion of pro t which is apportioned to the owner and is immediately p...

    ACCOUNTING PRINCIPLES:- “Accounting principles are a body of doctrines commonly associated with the theory and procedures of accounting serving as an explanation of current practices and as a guide for selection of conventions or procedures where alternatives exist.” Accounting principles must satisfy the following conditions: 1. They should be based on real assumptions; 2. They must be simple, understandable and explanatory; 3. They must be followed consistently; 4. They should be able to re ect future predictions; 5. They should be informational for the users.