Accounting entity - accounting principle, Financial Management

Accounting Entity - Accounting Principle

For accounting reasons it is suppose that business has separate existence and its entity is different from that of its owner(s). In simple term this means in which the liabilities and assets of the business are not the liabilities and assets of the owner of the business.

Accounting is completed for the business entities as distinguished is completed for the business entities as distinguished from the persons related with these entities; as such the transactions of the business and those of the owners should be accounted for and reported separately.  A business enterprise is an economic unit separate and apart from the owners. Every transaction should be analysed from the point of view of a business enterprise and not that of persons who are associated with it. For example when the owner introduces cash in business, this cash is shown as Capital Liability of the business towards the owner. The introduction or withdrawal of cash does not affect the overall cash (personal plus business) position of the owner. This concept enables recording of transactions between business and its owner.

This concept ensures that accounting records reflect only the activities of the business and the expenses related to common resources used for business and personal use and apportioned on some equitable basis between business and its owners. This concept applies to all form of business enterprises e.g. sole proprietorship, partnership and joint stock companies. However, the separate existence of business entity is recognized by law only in case of corporate form of enterprise, for sole proprietorship and partnership firms the law does not distinguish the owners and business separately.  Hence in legal sense the owners and business may not be different for some form of business enterprise, but for accounting purpose the business and the owners would be always treated separately.

Posted Date: 2/6/2013 12:53:07 AM | Location : United States







Related Discussions:- Accounting entity - accounting principle, Assignment Help, Ask Question on Accounting entity - accounting principle, Get Answer, Expert's Help, Accounting entity - accounting principle Discussions

Write discussion on Accounting entity - accounting principle
Your posts are moderated
Related Questions
Q. Explain about receivables management? Receivable Management: - The term receivables demote to debt owed to the firm by the customers resulting from sale of goods or else ser

Explain the Benefits of benchmarking - Better understanding of business, competition and customers. - Improves business performance and discourages complacency. - Good wa

List and explain the three financial factors that influence the value of a business. The three factors that influence the value of a firm's stock price are timing , cash flow

A. Mitt starts Examine Your Zipper Incorporated ("XYZ") in 2012 by selling common stock of $12,000,000. He promises the investors in his company a 15% return on their capital. B

Q. Describe Modigliani and Miller Approach of Capital Structure? Ans. Modigliani as well Miller Approach: - The Modigliani-Miller approach is alike to the net operating income

Event-Driven Strategies : These strategies are solely focus on events of corporate life cycle for investing. They involve significant opportunities created by corporate events such

X company sells on terms of 2/10, net 40. Gross sales last year were $4.5 million and accounts receivable averaged $ 437,500. Half of X''s customers paid on day 10 and took discoun

Define the term- Cash purchases     Shareholders of the target company are bought out completely and have no further stake in business. This is good if predator shareholders want

Investment Strategy OF HEDGE FUNDS After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strat

Flying High Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will ha