May 29, 2022

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ACCOUNTING CONCEPT–BUSINESS ENTITY

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ACCOUNTING CONCEPT–BUSINESS ENTITY



This concept is based on the assumption that a business must be seperated from the owner. The business should be regarded as a person (artificial) seperated from the owner(s).

There are several types of businesses. Sole propertorship, Partnership, Companies, Corperatives and government enterprises. Each type must be seperated from the owner(s).

In a Sole Proprietor business, which is a one-man/ one-woman business, in preparing it’s financial statement, he/she recognises that his business is seperated from him/her by stating the name of the business (for example, Head to Toe Beauty Stalon), he/she only state his/her interest as capital and drawings.

A partnership business is a business owned by minimum of two persons and maximum of twenty in the Nigeria context with an exemption of some certain professional firms like law firm and accounting firm.

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A partnership business also recognises that, their is totally separated from the owner. They show their interest in the business in the form of Partners Capital and Current account.

A company can be limited liability company, public liability company or company limited by guarantee. In a company, shares are sold to shareholders as part of ownership in the business. Therefore, shareholders are the owner(s) of the business.

Laws backing companies shows that companies are totally separated from the owners and are managed by directors. Shareholders interest in the company are called, Shareholders fund and Dividend. Shareholders’ fund is made up of share capital, share premium, and other types of reserves stated in the Statement of Financial Position (Balance Sheet).

Cooperatives are type of business, where a certain number of persons come together to contribute money in form of savings and used the fund for their maximize benefits. There interest in the business is the money they contributed and their benefits which is interest. Their interest can come in various forms including housing, goods or money.

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Government Enterprises are enterprises owned by government. Most of government businesses are not formed for profit making. So they are termed non-profit making business. They are normally separated from government. Government interest in them is the capital made to form it.

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