Accounting concepts and conventions

Accounting concepts define the assumptions on the basis of which financial statements of a business entity are prepared.  Concepts are those basic assumptions and condition which form the basis upon which the accountancy has been laid. 

Business entity concept This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. Thus, the business and personal transactions of its owner are separate. For example, when the owner invests money in the business, it is recorded as liability of the business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense.