The economic entity principle of accounting is a principle that gives us guideline about storing the financial information of a given entity. This principle states that the financial information of a given entity must be stored separately then the financial information of the owner or the financial information of the other entities of the same owner. This principle states that a separate account must be maintained for each business entity whether it is a financial account or a bank account. The basic idea of maintaining separate accounts is that the assets and liabilities of the different business entities must remain separate and do not intermix with each other.
As we know that there are different forms of the business entities such as sole proprietorship, corporation or a partnership company. The economic entity principle is applied generally to those businesses that are recently started so that their funds and other financial details don’t comingle with the other entities or with that of owner’s details. In order to implement economic entity principle to the business an experienced accountant is hired that scans all the financial information and transactions of the business and separate those transactions that belong to owner or some other business entity.
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