(i) Business Entity Concept : According to this concept, a business firm is treated as a unit separate and distinct from its owners. 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 business. Similarly, the money/goods withdrawn by the proprietor from the firm for his personal use is treated as drawings. The concept of separate entity is necessary for ascertaining the true net profits and financial position of a business firm.
(ii) Going Concern Concept : In this concept, it is assumed that the business will continue to exist for a long time in the future. Transactions are recorded on the assumption that the business will exist for an indefinite period of time. A company is said to be a going concern if no evidence is available to believe that it will or will have to cease its operations in forseeable future.