Business entity concept
The business entity concept treats a business as an accounting unit separate from its owner, so only the business's own transactions are recorded in its books, even without a separate legal identity.
FrameworkIFRS Conceptual Framework
See it move
A sole trader pays a €2,400 family holiday from personal savings, which never touches the bakery and is not recorded at all. She later takes €600 cash from the till for a personal phone bill; because business cash left the business, €600 is recorded as drawings. The boundary depends on which cash moved, not how personal the spending was.
Check yourself
A sole trader who runs a bakery pays for a family holiday costing €2,400 from her personal savings account, and separately withdraws €600 cash from the bakery's till to pay a personal phone bill. Applying the business entity concept, which of the following correctly states what should appear in the bakery's accounting records for these two events?