Question

Mr. Rajan Thomas invested Rs. 5,00,000 in his business. He is treated as a creditor to the extent of Rs. 5,00,000 by the business. Write the relevant accounting assumption and explain it.

Answer 1

Accounting Entity Assumption:

This concept assumes that the entity of business is different from its owners. According to this concept, all the transactions of the business are recorded in the books of the business from the point of view of the business as an entity and even the owner is treated as a creditor to the extent of his capital.