Book-keeping · Lesson 14

Business entity concept in entrepreneurship; products, services and promotion

WAECNECO

What the syllabus asks

WAEC: Entity Concept in Entrepreneurship (meaning, features, relevance) and Product and Service Marketing (meaning, types, differences; methods of promotion). Links to bk1 (concepts), Commerce and Marketing mk units.

NECO: Entity Concept in Entrepreneurship (meaning, features, relevance) and Product and Service Marketing (meaning, types, differences; methods of promotion). Links to bk1 (concepts), Commerce and Marketing mk units.

What you will learn

Explain entrepreneurship and the functions of an entrepreneur.
State the meaning of the business entity concept.
List the features of the entity concept.
Record capital, drawings and private items correctly.
Explain the relevance of the entity concept to an entrepreneur.
Define marketing, products and services and classify products.
Distinguish products from services.
Describe methods of promotion and cost a promotion campaign.

Key points

An entrepreneur spots opportunities, organises resources and bears risk.
Entity concept: business separate from owner for accounting.
It applies to sole traders even though they are not legal entities.
Capital is owed by the business to the owner.
Drawings reduce capital; they are not expenses.
Private items paid by the business are drawings.
Separate accounts give true profit and help obtain loans.
Marketing starts with customer needs; the 4 Ps.
Services are intangible, inseparable, perishable and variable.
Promotion: advertising, personal selling, sales promotion, PR, direct marketing.

Start here: Entrepreneurship and the entrepreneur

Entrepreneurship is the process of identifying a business opportunity, gathering the resources needed (capital, labour, materials and skills), and bearing the risk of running a business to make profit. An entrepreneur is the person who does this: the founder and risk-bearer of a business.

Nigeria’s economy depends heavily on entrepreneurs: the trader in Onitsha Main Market, the poultry farmer in Ogun State, the tailor in Kano, the software developer in Yaba. Most begin as sole proprietors with small capital, and good records are often the difference between growth and failure.

Functions of an entrepreneur

Identifies opportunities (unmet needs).
Raises and organises capital and other factors of production.
Bears risk and uncertainty.
Makes decisions and plans.
Innovates: new products, methods or markets.
Creates employment and contributes to economic growth.

Qualities of a successful entrepreneur

Initiative and creativity.
Willingness to take calculated risks.
Hard work, persistence and self-discipline.
Good human relations and honesty.
Financial discipline: keeping business money separate from personal money, and keeping proper records. This is where book-keeping and the entity concept come in.

Worked example 14.1

Halima notices that many women in Kano want modern but modest fashion. She saves ₦1,500,000, rents a shop, employs two tailors and starts “Halima Fashions”. Identify three entrepreneurial functions she has performed.

Solution. She identified an opportunity (demand for modest fashion); she raised and organised resources (₦1,500,000, a shop, two tailors); she bears the risk (if sales are poor, she loses her savings).

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Practice questions

1. The business entity concept means the business is

treated as separate from its owner in the books
owned by the government
run for no profit
a legal person in all cases

Show answer

A: treated as separate from its owner in the books
Accounting separation.

2. A sole proprietorship is separate from its owner

in law but not in the books
in both
in neither
in the books but not in law

Show answer

D: in the books but not in law
Entity concept is an accounting rule.

3. Goods taken by the owner for private use are recorded as

Dr Sales, Cr Capital
Dr Capital, Cr Sales
Dr Drawings, Cr Purchases
Dr Purchases, Cr Drawings

Show answer

C: Dr Drawings, Cr Purchases
Drawings at cost.

4. The owner pays a business bill from her personal account. Credit

sales
capital
drawings
cash

Show answer

B: capital
Capital introduced.

5. Capital 1,500,000 + additional 300,000 + profit 820,000 − drawings 460,000. Closing capital is

₦2,160,000
₦2,620,000
₦2,460,000
₦1,860,000

Show answer

A: ₦2,160,000
Sum.

Key words

Entrepreneur: A person who starts and runs a business and bears its risk.
Business entity concept: The business is treated as separate from its owner in the books.
Drawings: Cash or goods taken by the owner for private use.
Capital introduced: Resources the owner puts into the business.
Legal entity: A body recognised in law as a separate person, such as a company.
Marketing: Identifying and satisfying customer needs profitably.
Marketing mix: Product, price, place and promotion.
Product: A tangible good offered for sale.
Service: An intangible activity or benefit offered for sale.
Promotion: Communication to inform and persuade customers.
Sales promotion: Short-term incentives to buy.
Contribution: Selling price less variable cost per unit.

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