Question

Explain business entity concept and money measurement concept of accounting

Answer 1

Business entity concept - - According to this concept, the task of measuring income and wealth is undertaken by accounting for an adenfitable unit or entity. The unit or entity so identified is treated different and distinct from its owners or contributors. In law, the distinction between owners and business is drawn only in case of company but in accounting this distinction is made in case of sole trader and partnership firm as well..


Implicitation of the above concept is that the owner and business is treated as two different and distinct entities and we record the transactions from the view point of business.


Money measurement concept - - All the business transactions are measured and settled in monetary terms. Money is a common denominator. It is used to measure assets, liabilities, expenses, loses, income etc.. Money is a medium to value the quantities.

Implicitation of this concept is that it records only those transactions which have monetary base..