The Accounting Entity

A set of accounts applies to a single organisation which is called the accounting entity. The accounting entity may consist of one person, a family business with an owner and a few employees, a partnership, or a limited company. Non-profit organisations of all types - hospitals, welfare organisations, professional associations, clubs, schools - are also accounting entities.

The accounts of the entity must be kept separately from those of persons outside the entity, including its owners. Since a limited company is legally a separate person, this separation is relatively easy to make. For less formal business structures, however, problems often arise in keeping the affairs of the entity separate from those of its owners. The shopkeeper who takes home food for the family should record this fact in his accounts, even though he is its sole owner. As an individual he is no better off whether the food is in the store or in the kitchen. But accounting records show that the entity is worse off because groceries have been taken.