Hello everyone, we are in another class and today's topic
is business entity concept in this clip we will see what is
a business entity concept and how it affects accounting
let's understand it first we will take an example through
which we will do some discussion we will see some figures
and do some calculations and when we will understand
everything in Hindi then we will come back and read out
these figures and we will see what is written in it so
without any delay let's go to the pad and as
previous clips
I have a request and promise that if you write this then
you will understand it promise that you will understand it
there will be no problem yes sir, ok let's write the
example whose example will you give?
I will give you an example there is a serial on TV if
everyone has heard its name according to me whose name is
Tarak Mehta Ka Ulta Chashma which we lovingly call
TMKOC Tarak Mehta Ka Ulta Chashma you will search on
YouTube there are many episodes and memes are also going on
we see this while eating our food does not come down there
used to be an old episode these days it is not so much fun
but it was fun in the initial episodes you are absolutely
right so there is a very important character in it whose
name is whose name is
Jethalal Sir, in the name of this character another female
character immediately comes to mind what can I do we don't
have to discuss about it we will be limited to Jethalal in
our example we don't have to discuss about it we will be
limited to Jethalal we will be limited to Jethalal there is
a shop of Jethalal yes, in the name of Gada Electronics
those who watch the serial they understand everything those
who don't understand
I am telling them
Jethalal has a shop in Powder Gali in the name of Gada
Electronics in this shop, he sells out electronics like
your mobile like your LED TVs like your refrigerators etc.
and sometimes if Babita ji comes to the shop then the rates
are half but he does a very good business to normal
customers and earns a lot of profit he sells it to normal
customers what happened he did business for a whole year he
did business for a whole year you know Jethalal very well
he has no knowledge of accounting he did business for a
year and he thought should I see if I made a profit or loss
how much profit or loss so he picked up a pen and paper and
started doing some calculations he
the sale that happened during my year was of 12 lakh rupees
now what will he do a common man who has no knowledge of
accounting debit and credit what will he do he said let me
see how much I earned if I minus my expenses from that
profit will come out he said my sale was of 12 lakh rupees
and I also earned some other income commission, interest,
dividend etc.
3 lakh rupees so he said total income total income is 15
lakh rupees he had done goods sale and some investments in
the name of Gada Electronics from where he earned other
income of 3 lakh rupees so from Gada Electronics his total
income was 15 lakh rupees now this 15 lakh can't be
considered as a profit every common man who has no
knowledge of accounting will not say that 15 lakh will be a
profit he will say that expenses will have to be deducted
only then it will be known this is income not
now this brother started deducting expenses
he made a list of expenses and said I will deduct expenses
from this he said goods which he sold he bought it so he
deducted expense of his purchase expense of purchase 4 lakh
rupees margin is very good purchase of 4 lakh rupees he is
making a list of expenses purchase of 4 lakh rupees then he
said rent of the shop let's increase the purchases let's
say 8 lakh rupees now it is fine margin was too much to
keep the figure relevant
I increased the purchase then he said rent of the shop 2
lakh rupees employees work in the shop
Nattu Kaka, Baga
Gaman, Raman, etc who used to live in Godown total salary
is 4 lakh rupees total salary is 4 lakh rupees total salary
is 4 lakh rupees repairs and maintenance expenses 1 lakh
rupees 1 lakh rupees 1 lakh rupees 1 lakh rupees
1 lakh rupees 1 lakh rupees 1 lakh rupees 1 lakh rupees
Nattu kaka
Rs 20,000
Rs 20,000 20,000 20,000 look carefully after this now SMC,
Society Maintenance Cheque, he added all the expenses and
wrote 1,80,000 Rs.
1,80,000 Rs.
And he said my total expenses are 8,00,000 Rs.
Plus 2,00,000 Rs.
Plus 4,00,000 Rs.
Plus 20,000 Rs.
Plus 180,000 Rs.
16,00,000 Rs.
He said my expenses total is 16,00,000 Rs.
My income is 15,00,000 Rs.
And he started crying that my net loss is 1,00,000 Rs.
Long tears started coming from Jethalal's eyes.
See how many long tears.
Why? Because he is saying that the shop is useless.
He started blaming the shop.
He started cursing the shop.
He is saying that the shop brought me to a loss.
This is too much.
I don't want to do such a business.
I don't want to open such a shop.
This was completely useless.
Because of the shop, today I am in a loss of 1,00,000 Rs.
What are you earning?
My expenses are not being fulfilled from the shop.
And he decided to close the shop because of the net loss of
1,00,000 Rs.
But where he was crying, I was going out of the way.
I was going out of the way.
I was looking at Jethalal.
And he was crying.
So I went to him and asked him.
Brother, why are you crying?
What happened?
So he presented me this whole paper.
See this is the reason for my crying.
The total income is only 1,50,000 Rs.
The expenses are 1,60,000 Rs.
I am in a net loss of 1,00,000 Rs.
I am closing my shop in Powder Gali.
I am doing some other business.
Now I am an accountant.
I know a little bit about the concept of accounts.
I know a little bit about the debit credit.
I know how to calculate the profit and loss.
I know a little bit about the accounting principles.
So as soon as I saw his list here, I said,
Brother, what are you doing?
I said, brother, what are you doing?
You are getting worried for no reason.
There is nothing to cry about.
Jeethalal felt that his tears stopped once.
He felt that there was no mistake in my calculation.
He took the paper from my hand again and calculated.
No, the calculation is absolutely correct.
I am in a loss of 1,00,000 Rs.
He started crying again.
I said, brother, not calculation.
Some of your principles have gone wrong.
There are some rules for making profit and loss that you
have not followed.
You are giving the shop a useless fault.
I said to him,
Brother, if you want to get the performance of your shop,
Gada Electronics,
What are you earning and what are you not earning?
If you just want to get the performance of your shop,
If you want to see the performance of your business,
How did the business perform?
Then you take the income of the business from it.
1,50,000 And reduce the expenses only to the business
people.
This 1,80,000 Rs.
Why are you giving this 1,50,000 Rs.
to the shop?
If you remove the expenses of the house for once,
Then the total of your expenses is 14,20,000 Rs.
14,20,000 Rs.
So you are in profit of 80,000 Rs.
Where are you in loss?
You are in profit.
80,000 Rs.
Now Jethalal said,
Does this happen?
Should I not reduce the household expenses from the income
of the shop?
I said, don't do it.
If you want to know the performance of Gada Electronics,
Then from the total income of Gada Electronics,
Reduce the total expenses of Gada Electronics.
If you come and die in front of him, then this poor girl
will go to loss.
This brother, the business is earning you a profit of
80,000.
The expenses of your house are so high that the expenses of
your house are not running in the profit of 80,000.
The expenses of your house are going to 180,000.
And the profit you have is only 80,000 which is coming from
the shop.
That's why you are going to a loss of 100,000.
The shop kept a profit of 80,000 in your hand.
If you spend 180,000 outside, then what should the shop do?
You should control the expenses of your house.
Teach Tappu in a light school.
Spend less on food clothing.
Eat less jalebi and phapda.
And use less electricity and AC.
Control the household expenses.
There is no point in taking this decision.
Close the shop.
The shop is performing well.
It is earning you an average profit.
You have to increase a little there too.
Work there.
That is a different matter.
But friend, the expenses of your house are high.
So see friend, I understood Jethalal's point.
And then he said, yes, yes, you are absolutely right.
I did the wrong thing.
I should not close the shop.
He decided to open the shop again the next day.
And now he said, I will pay attention to household expenses.
My household expenses should be a little less.
The same principle that I taught Jethalal.
This principle is called in accounts.
Business Entity Concept.
The rule we follow for accounting.
This is called the Business Entity Concept Rule.
If you want to see the performance of the business.
Minus the expenses of the business from the income of the
business.
There is no need to reduce household expenses.
Personal expenses will not be considered.
In the accounting of the business.
Personal income will also not be considered.
If Jethalal made a bet with a wolf.
And he won the bet with a wolf.
And he won 10,000 rupees.
Then even that will not be included in the total income of
the business.
And Jethalal's household expenses will not be considered
here.
Both are the same.
Okay, sir.
Okay, I understand what you are saying.
Come on.
My dear friends.
You are watching from here.
We get help in taking better decisions from the Business
Entity Concept.
Business Entity Concept also helps us in taking better
decisions.
Right.
Now let's see what is written.
He had decided that I am closing the shop.
What a wrong decision.
Because he did not know the Business Entity Concept.
Now that he has understood, he has come to his senses.
So this concept is very important.
It also helps in making good decisions in business.
This concept assumes that the organization and business
owners are two independent entities.
The Business Entity Concept says that the owner and the
business are different.
Minus the expenses of the business from the income of the
business.
Neither will the owner's personal income be included in the
total income of the business while making a profit.
Nor will the owner's personal expenses be considered in the
expenses of the business.
Both will be considered separately.
Hence, the business transaction and personal transaction of
its owner are different.
For example, when the business owner invests his money in
the business, it is recorded as a liability of the business
to the owner.
This line says that when we have accepted both the business
and the owner separately, then the money invested by the
owner in the business is considered a liability for the
business.
Because we have accepted it separately.
Similarly, when the owner takes away cash or goods from the
business for his or her personal use, it is not treated as
a business expense.
Thus, the accounting transactions are recorded in the books
of accounts from the organization's point of view and not
the person owning the business.
Whenever we do accounting or general entry, we place
ourselves in the position of the business.
What is happening with the business?
We do general entry from that angle, not from the angle of
the owner.
For example, the owner has paid the fees of his child's
school.
We will not enter it in the business.
Because nothing has happened with the business.
The owner has paid the fees of his child's school.
It is a personal transaction.
It will not be entered in the business.
If employees are given a salary from the business, it is a
transaction related to the business.
It will be considered in the business.
We will consider it in business accounting.
We have also put a photo here.
The business and the owner will be considered separate.
Friends, this is the way to learn all the concepts.
I hope you understood everything I told you.
Friends, there is no need to remember all this.
Understand what I have explained in Hindi.
Remember the example.
The purpose of giving an example for life is that you will
forget the things written in English.
But if you take care of the example in your mind, then you
will remember this concept for life.
So remember the things through the example.
Speak in Hindi.
You do not have to give any paper.
Okay.
See you in the next clip.
Thank you and Bye Bye.