Entity Theory
Definition of 'Entity Theory'The assumption that the economic activities of a business is distinct from those of its owners. The entity theory maintains that the activities of a business can be accounted for separately from the activities of its owners, therefore the owners are not personally responsible for loans or other liabilities taken on by the company. The entity theory is fundamental to modern accounting. |
|
Investopedia explains 'Entity Theory'From a business liability standpoint, limited liability for owners in certain business structures is very important for commerce. But in order to maintain a system whereby owners are not personally liable for the liabilities of a corporate entity, it must be possible to separate the business finances from those of the owners. |
Related Definitions
Articles Of Interest
-
Evaluating Firm Size In A Financial Advisor Job Hunt
The choice between a larger or smaller company may be decided by an advisor's experience or temperament. Find out the best size for you. -
In Small Business, Success Is Spelled With 5 "C"s
Incorporating these steps will help your business thrive in a competitive market. -
Protect Your Personal Assets
A family limited partnership (FLP) can go a long way toward securing your family's property. -
Should You Incorporate Your Business?
Find out how becoming a corporation can protect and further your finances. -
Is An ESOP Right For Your Business?
Discover how to transfer your company's net worth to the next generation of entrepreneurs. -
Don't Get Sued: 5 Tips To Protect Your Small Business
Find out what you can do to limit risk and keep your business running smoothly. -
The Basics Of Corporate Structure
CEOs, CFOs, presidents and vice presidents: learn how to tell the difference. -
Depreciation: Straight-Line Vs. Double-Declining Methods
Appreciate the different methods used to describe how book value is "used up". -
Financial Statement: Extraordinary Vs. Nonrecurring Items
When it comes to analyzing a company, successful analysts spend considerable time differentiating between accounting items that are likely to recur going forward from those that most likely will ... -
Get A Career In Showbiz Accounting
An accounting career doesn't have to be boring. If you love numbers, but want excitement as well, consider the field of showbiz accounting.
Free Annual Reports