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entity concept doubt
Accountancy
"Since the owner has provided risk capital to the business, he has a claim on the profit of the enterprise. A portion of profit which is appropriated to the owner and is immediately payable becomes current liability in the case of corporate entities." what does it mean , a business ownes money to owner ? [Video Time Stamp: 03:13] Video Details ------------- Accounting - CA Foundation (New) Accounting Concepts, Principles And Conventions #2. Accounting Concepts - Part 1
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It means profit belongs to the owner, but it becomes a liability only when the business decides to pay it. Once profit is declared as payable (like a dividend), the business legally owes that amount to the owner. This happens in case of companies. In case of sole prop/partnership - there is no distinction between owners and business legally. However for accounting purpose we show accounting books as if its a separate entity. And the capital balance is what represents payable to owner.
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