Write short notes on : (i) The Business Entity Concept (ii) The Going Concern Concept.

(i) The Business Entity Concept — According to this concept, a business firm is treated as a unit separate and distinct from its owner(s). A completely separate set of books is maintained for the firm, and all transactions are recorded from the firm's point of view. The capital introduced by the owner is treated as a liability of the firm towards the owner; interest on capital is treated as an expense of the business; and money or goods withdrawn by the proprietor for personal use are treated as drawings. The concept is necessary to ascertain the true net profit and financial position of the firm.

(ii) The Going Concern Concept — It is assumed that the business will continue to exist for an indefinite period of time, with neither the intention nor the necessity to wind up its affairs. Transactions are recorded on this assumption. Therefore: (a) fixed assets are recorded at original cost less depreciation, since they are not meant to be sold in the near future; (b) a distinction is made between capital and revenue expenditure; (c) outsiders are willing to supply funds and goods on long-term basis; (d) existing liabilities are paid at maturity; and (e) unsold stock is carried over to the next year. This concept also justifies the distinction between fixed assets and current assets.