The business entity or entity concept is very important concept of accounting. Accounting to this concept, the task of measuring income and wealth is undertaken by accounting, for an identifiable unit or entity. In other words entity concept means firm and the proprietor are two separate entities.
If this distinction is not made the personal and business transaction will mix-up together and will create confusion. Thus the unit or entity so identified is treated different and distinct from its owners or contributors. In law the distinction between owners and the business is drawn only in the case of joint stock companies but in accounting this distinction is made in the case of sole proprietor and partnership firm as well.
For example, goods used from the stock of the business for business purpose are treated as business expenditure but similar goods used by the proprietor for his personal use are treated as his drawings.