Business Entity Concept
(企業個體)
Definition
• It assumes that the business entity
should be separated from its owner(s).
• 企業(公司)被視為一個獨立個體，企業
所擁有的資產和負債，與東主或股東的
私有財產、完全劃分清楚。東主的私人
交易不應記入公司的帳簿內。
• 與公司有關的交易才會記入公司的帳簿
內。
Example
• Insurance premiums for the owner's house should
be excluded from the expenses of the business.
• The owner's property should not be included in
the premises account of the business.
• Debiting the proprietor account for owners'
drawings.
• Crediting capital account for capital provided by
the business owner.
Examples of accounting entities
•
•
•
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Sole traders
Partnerships
Corporations
Trusts or consolidated groups
Importance
• It defines the area of interest of the
financial statements.
• It helps to determine what and how things
should be disclosed in the financial
statements.
Differently Proprietors May Have Different
Views on the Capital They Contributed to the
Entity Concept.
Three kind of theories:
• Proprietary theory
• Entity theory
• Fund theory
Proprietary Theory
• The accounting concepts are defined from the
viewpoint of the proprietor.
• Assets,Liabilities and net income belong to the
owner.
• Profits represent an increase in the owner's
capital.
• The theory best applies to sole proprietorships
and partnerships because there is a personal
relationship between the management of the
business and the owner.
Entity Theory
• The business has a separate accountability
of its own.
• The firm is viewed as a separate economic
and legal unit.
• The assets, liabilities, revenues and
expenses of the business are accounted for
separately from its owners.
Fund Theory
• Apply to governmental and non-profit making
organizatinos, such as collegesm charities and
hospitals.
• The fund includes a group of assets and liabilities,
and restrictions representing specific economic
functions.
• Each fund has its assets restricted for designated
for designated purposes. The liabilities are
restrictions imposed on assets.