Business entity concept
The business entity concept records a business’s transactions separately from its owner’s private affairs. This accounting separation applies even to a sole trader who is not legally separate from the business. Owner contributions increase capital, while withdrawals for personal use are drawings. They are not business revenue and expenses simply because they pass through the same bank account.
Worked example
A sole trader pays a personal electricity bill using business cash: debit drawings and credit bank, rather than recording a business electricity expense.
Common mistake
Accounting separation does not give a sole trader limited liability or create a separate legal company.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Entity concept