Economic Entity Assumption
Accounting glossary · Understand, connect, apply
The economic entity assumption treats the activities of a business as separate from its owners’ personal activities and those of other entities for accounting purposes.
Example
A sole trader pays a personal grocery bill from the business bank account. Record an owner’s withdrawal, not a business operating expense.
Remember the difference
Accounting separation can apply even when the business is not a separate legal person.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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