Economic Entity Concept

The Economic Entity Concept states that a business's financial activities are separate from the owner's personal finances. This means that all income, expenses, assets, and liabilities related to the business are recorded separately from those of the owner or other entities. This separation ensures accurate financial reporting, allows for clear understanding of the business’s financial health, and helps in making informed decisions. It underscores the idea that a business is a distinct economic unit, even if owned by an individual, and its financial records should reflect only its own transactions.