What is the concept of entity?

Entity concept is the principle of accounting that allows businesses to be treated separately from its owners for accounting purposes. The financial activities of individuals, private owners or shareholders who own the business are independent of the company itself. Within the concept of entity, the company itself carries out all its own transactions, collects profits and losses and is taxed accordingly from these results. This concept applies to all types of companies, from those who own more individuals, such as partnerships or corporations, to those who own individuals who are known as the only traders. Over time, some of the most famous companies in the business world have taken their own identity through their marketing strategies and public interactions. For the purposes of accounting, it turns out that the perception of companies is relatively accurate, because they usually treat them as if they were living from their owners. This is known as the concept of entity, the principle of roofingThe accounting that determines how businesses are taxed.

When considering the entity concept, it is important to understand that some common terms and conditions are assessed differently depending on the context in which they are viewed. For example, a profit is something every business wants to achieve abundance. However, when it comes to business as an entity, profit is actually something that the business owes owners.

Based on this idea, the concept of entity regulating the trade accounting provides that the company must be taxed according to its own actions. These actions must be held separately from the owners, which can be numerous in the case of corporations or partnerships. If business owners start to report these events for their own purposes. If you do not do so, it is basically a form of tax fraud.

For individuals who are lonely owners of companies, the concept of entity organizes various consequences. In tIt is essential to separate the money embedded in the company from the owner of the owner from the capital obtained by the company from the sale and other flow flows. For the same reason, money must be recorded as the owner's drawings. These differences are important for tax consequences for companies owned by so -called exclusive traders.