What is business entity concept of accounting?

According to the Business Entity Concept, a business firm is treated as a unit separate and distinct from its owner. A completely separate set of books is kept for the firm and business transactions are recorded from the firm's point of view. The capital provided by the owner is treated as a liability of the firm, interest on capital is treated as an expense of the business, and money/goods withdrawn by the proprietor for personal use are treated as drawings. This distinction between business transactions and personal transactions is necessary to ascertain the true net profit and financial position of the firm. The concept applies to all forms of business — sole proprietorship, partnership and company.