Entity concept

In accounting, a business or an organization and its owners are treated as two separately identifiable parties. This is called the entity concept. The business stands apart from other organizations as a separate economic unit. It is necessary to record the business's transactions separately, to distinguish them from the owners' personal transactions. This helps to give a correct determination of the true financial condition of the business. This concept can be extended to accounting separately for the various divisions of a business in order to ascertain the financial results for each division.