Separate Entity

[SEP-uh-rit EN-ti-tee]

What is the definition of Separate Entity?

A principle in accounting where a business is considered distinct and separate from its owners, creditors, and other businesses, allowing for independent financial and legal transactions.

Using Separate Entity in an Example

In the context of accounting, the separate entity principle means that a company's financial records are maintained independently from the personal financial records of its owners. For instance, if an owner invests personal money into the business, this transaction is recorded as a liability for the business to the owner, rather than merging the owner's personal finances with those of the business.

Using Separate Entity in a sentence

During the audit, it was emphasized that due to the separate entity principle, all personal expenses of the owner must be clearly distinguished from the business expenses.

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