Economic Entity Principle


Definition: the Economic Entity Principle is the fundamental basis in accounting to always separate the owner from the business from the business itself.
According to this principle, business transactions must be treated separately from personal owner transactions. In the accounting records of a business, only those transactions are recorded that have a particular business effect and transactions that are not relevant for a business must be treated separately. A business has a separate legal existence.


More on accounting and auditing: Accounting Cycle, Accounts Payable, Accounts Receivable, Accrued Revenue, Amortization, more...


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