Benefits and Drawbacks of Straight-Through Processing
In the previous article, we have already seen what straight-through processing is and how it is different from the usual commercial lending processes adopted by commercial banks. We now know that straight-through processing is a futuristic technology-based business model which all commercial banks are working towards. Right now, the model is not used in many […]
Artificial Intelligence and Machine Learning in the Retail Sector
Artificial intelligence (AI) and machine learning (ML) are disrupting the entire business landscape across the globe. The retail industry is no exception. Leading retailers from across the world have started experimenting with Artificial intelligence (AI) and machine learning (ML). There has been an influx of various technologies into the sector in order to shape the […]
Ratio Analysis in Personal Finance
Ratio analysis is considered to be very important when it comes to making financial investments. There are many retail investors who know the value of retail investments. As a result, they also routinely perform a ratio analysis for companies that they invest in. However, surprisingly, a lot of these analysts do not perform a ratio […]
Key Performance Indicators for Startups
Entrepreneurs as well as people in the general market are often left perplexed about how investors decide to value any company. It is common for two companies with very similar asset bases and value propositions to receive a very different valuation from investor groups. This may seem confusing to common people and the entire valuation […]
Open Banking – Meaning, Need, Advantages and Disadvantages
The field of commercial banking is undergoing many technological changes simultaneously. Open banking is one such technological change. Open banking is unique in the sense that this change has been initiated by regulators in most parts of the world. Generally, technological changes are adopted by commercial banks themselves with a view to increasing their productivity […]
The entity concept is one of the central tenets of accounting. An understanding of the same is therefore of paramount importance to students. However, the entity concept came as a solution to a problem faced by earlier accountants. To understand the benefits of the solution provided, we must look at the problem first.
In reality a business is just another aspect of a person’s life. When many people get together and start a business, it is their collective effort. However, this can cause confusion for the accountants. Imagine accounting for personal and business expenses together. The accountants would never be able to come to an accurate picture of profits.
To solve this problem, accountants created the entity concept. This was the separation of personal and professional concerns of the entrepreneur. For the purpose of accounting, the business is considered to be an entity which is independent and separate from its entrepreneur.
The separation of concerns in accounting is irrespective of the legal status of the organization. In real life, some forms of organizations like private limited and public limited companies are considered to be separate entities whereas other forms like partnerships and sole proprietorships are considered to be part of the owner’s entity. Accounting does not make this distinction.
The entity concept may seem to be a frivolous and obvious assumption of accounting. However, the implications that thus assumption creates is both start and counterintuitive. Here is a look at the implications.
The entity concept considers the company separate from its owners. Thus, capital is money that owners have lent to the company. This is why it appears on the liabilities side of the company’s financial statements. If you prepare the owners personal financial statements, the same capital will appear as his asset.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
