What Is an Accounting Entity?

An accounting entity or economic entity refers to the object and scope of accounting work and the preparation of accounting statements. It should also be a specific unit for which accounting services serve. Obviously, each accounting entity should have independence in society, and become an independent accounting unit with independent funds that can independently carry out production and business activities and business activities. ^[1]

Accounting entity

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An accounting entity or economic entity refers to the object and scope of accounting work and the preparation of accounting statements. It should also be a specific unit for which accounting services serve. Obviously, each accounting entity should have independence in society, and become an independent accounting unit with independent funds that can independently carry out production and business activities and business activities. ^[1]

Business accounting reflects the business activities of a particular enterprise. It does not include the economic activities of individual business owners, nor does it include the business activities of other related enterprises. As an independent commodity producer, the company independently calculates and bears its own profits and losses. This requires that when accounting is performed, the business activities of the enterprise are distinguished from the business activities of the owner and other enterprises, and the true, independent and complete reflection of the company's own business activities, financial status and operating results is required. Clarify business management responsibilities and make correct decisions based on accounting information. Obviously, only by putting forward the basic premise of accounting entity can the accounting scope of enterprise accounting be clarified. Only in this way can the company's financial status and operating results be objectively and fairly reflected.

From the history of accounting development, the formation of the basic premise of accounting entities has a long process. In the Middle Ages, operating organizations were mainly in the form of sole proprietorships or partnerships. The emergence of a partnership requires that accountants must treat it as an operating entity independent of their partners to reflect its property, financial rights, and operating results. Otherwise, if the income and expenses incurred in the business activities of the enterprise are confused with the individual income and expenditure of its owners, it will be difficult to deal with the rights and interests of each partner fairly and reasonably on the books. In fact, as long as market competition exists, even a sole proprietorship enterprise, in order to calculate its own profit and loss status, the enterprise owner will require the enterprise to perform independent accounting to distinguish it from other investment activities and private income and expenditure of the owner. With the development of joint-stock enterprises, the separation of ownership and management rights has been achieved. In order to correctly reflect and evaluate the financial status and operating results of joint-stock enterprises, it is necessary to distinguish the property income and expenditure of individual shareholders from property income and expenditure in the company's operating activities. Come. In a sense, the development of joint-stock enterprises has played a catalytic role in the formation of the basic premise of accounting entities.

Therefore, fundamentally speaking, the calculation of the enterprise as an accounting entity reflects the requirements for the correct calculation and strict assessment of the company's profit and loss by the business operator. In addition, from the perspective of further recording of property and income and expenditures, once the owner's property is invested in the enterprise and used according to the business requirements of the enterprise, it should be recorded independently in the books, strictly excluding those unrelated to the company's production and operation The property income and expenditure or other economic transactions that belong to the owner himself. Only in this way can the business results of the enterprise be accurately and completely reflected. This is the requirement of market economy for accounting. Business accounting entities are different from corporate legal persons. Legal person refers to a legal entity that is registered in a government department, has independent property, and can bear civil liability. It emphasizes the economic and legal relationship between the enterprise and various aspects: while the accounting entity handles the relationship between the owner and the enterprise correctly, and correctly Established based on the requirements of internal relationships. Although all corporate legal entities are accounting entities, not every accounting entity is a legal entity. For example, some enterprise groups have many subsidiaries. Although these subsidiaries are legal persons, for the purpose of operation and management, in order to comprehensively evaluate and reflect the group company's operating activities and financial results, it is necessary to combine all the subsidiaries with the parent As an accounting entity, prepare consolidated financial statements to enable a comprehensive analysis and evaluation of the operating conditions of the entire group of companies.