What is accounting entity concept? why is it important in
Accounting.
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Answer Posted / h.r. sreepada bhagi
As per the Business Entity concept, the business
unit/firm/company has a distinct existence from it's owners.
Hence the personal transactions of the
proprietor/partner/shareholder should not be mixed with the
business transactions. From this view point, the owner,
partner or the shareholder is also a creditor to the extent
of money invested by them in the business or in other words
the net-worth of the business entity.
Importance lies in the fact that the effectiveness of the
business can be measured irrespective of who has put in the
money (Income generating ability). Further in order to
comply with statutory requirements of certain types of
business organisations also this concept is necessary.
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