Economic Entity Principle

Ownership and Management are two integral functions in any specific organization. The bigger the organization in terms of size, these functions will keep on separating and becoming prominent. For instance, in the case of the sole proprietorship, the said functions are concentrated in one single person, however, in the corporation there can be hundreds of man representing the ownership function in the form of shareholders and likewise there can be hundreds of man representing and discharging the management of the organization function.

Concept of the Principle

It is very important accounting principle and is a fundamental on which the accounting standards are based and the further requirements are set out. The principle emphasizes upon keeping the two functions separate and application of the same spirit in the financial records and statements. The personal and domestic financial records will be kept distinct from the business records and statements. The principle may be commonly referred to by the other nomenclature such as business entity assumption, business entity principle.

Importance of the Economic Entity Principle

The keeping of the separate records will help in the realization of the true financial picture of the business and the stakeholders can make their decisions in favor or against the organization using the fair financial information about the organization that is not mixed with the financial information of the owner. The records are neither overstated nor understated and henceforth represent the true financial picture of the concern. In addition if the records of the owner and business are integrated, then it would not be possible to audit the financial affairs of the organization which will put question mark on the financial records of the organization.

Economic Entity Principle and the Legal Perspective

Legally the things are quite different. The law makes no distinction in the ownership and management and regards the sole proprietorship as the single entity. However, in the case of the partnerships and corporations the ownership and management functions are separated and corporation and partnership are treated as separate legal entity just like the Economic Entity Principle.

Economic Entity Principle and Consolidation

In the contemporary business world, the businesses have surpassed the international and domestic borders giving rise to the multi-establishment businesses operating in different geographical locations. The affairs of the business are controlled by the central management. This group of entities or alternatively companies is treated as single entity in real time for the preparation of the consolidated financial records in relation to the group. In that case, the economic entity principle will be applied in relation to the whole of the group and treat it as a single entity in real-time for the reporting purposes.

The concept of the economic entity principle becomes of increasing importance in relation to the businesses that have just commenced owing to the fact that there is increasing likelihood of the owners to commingle their personal funds with the financial capital of the business. The distortion of the results of the financial operations of the organization would necessitate the employment of a qualified accountant that will help with the reclassification of the transactions and events and thus present the true and fair financial results of the organization.

Accounting

Accounting

In the contemporary Business world, the volume of the daily business transacted calls for the comprehensive system in relation to the recording the transactions that provide useful information to the owners of the business.

Accounting and Book-keeping

It is important to differentiate the terms that is accounting and bookkeeping. The third important term that is need to be considered is reporting. Bookkeeping primarily deals with the recording of the transaction in the day-books which are also referred to as the books of the original entries. The subsequent process is to enter the transaction from these very day books to the respective ledgers. The recording in the ledgers to the eventual making of the trial balance is referred to as the accounting. The reporting which is formally referred to as the Financial reporting is the process of making the Financial statement which is actually the report about the whole year financial year operations of the organization that is why commonly referred to as the Financial reporting.

Accounting, Professional Growth and Job Careers

Accounting is the core and compulsory function of every organization in current contemporary business world. There are numerous accounting jobs that can be performed from home.Accounting primarily deals with the recording of the monetary transactions. There are numerous tools that are used for the purpose of the accounting of the Financial information. Accounting ledger books is one of them. In the accounting ledgers, there are numerous ledgers that are in fact accounts having the same nature of the transactions for the whole of the period. For instance, Sales Ledger is a account that has the all the sales transactions of the organization for the whole year.

Accounting is a major subject that can lead to professional excellence in the contemporary business world. There are different careers one can pursue after completing major in the accounting such as tax accounting, cost accounting, auditing, fraud examination, financial analyst and actuaries. This list is not exhaustive and the scope of accounting is increasing in its importance and usefulness.

Is Accounting Difficult?

Students often find accounting quite difficult to grasp and build the concept of the same. They keep on saying that accounting is so hard to understand. However, a understanding of the concepts along with a little practice can do the trick. I often find students memorizing debit as something that is increasing agent and the credit as the decreasing agent. This is not the case. Understanding the rules, concepts in the real spirit will make accounting easy for the students.

Impact of Technology on the Accounting

Accounting has changed significantly with technology over the time period. The introduction of sophisticated accounting software have changed the way the financial information is processed and eventually reported. The world witness the integrated accounting software any systems that not only help to standardize the information processing procedures but also help to connect the different departments of the organization. This helps the organization in viewing the big financial picture of the organization and take decisions that prove to be sustainable in the long-term. SAP, Oracle E-business Suite and the Quick-books are some of the prominent integrated accounting information systems. They are enterprise resource planning systems which implies and indicates that they help the organization to utilize the financial information resources in particular efficiently in the favor of the organization sustainability.

Excel plays important role in accounting accounting.  The software application that is Microsoft Excel affords the luxury of presenting financial information in many ways for the small enterprises. Microsoft excel is also quite useful in relation to the auditors as it helps the auditors in the preparation of the working sheets which aim to finding audit evidence for making opinion about the financial operations of the organization.

 Accounting Standards Setting Process

The setting out of the accounting standards is a comprehensive process that commences from identification of the contemporary recommendations from the stakeholders around the globe. The recommendations are deliberated upon to finalize the draft containing the draft accounting treatment of the issue, which is then reviewed and commented upon by the members and stakeholders. The consensus of the members and the stakeholders lead to final accounting standard. The process is not just confined to this and is subject to consistent review process.  

Accounting Principles

Financial reporting that is the making of the financial statements is governed about certain principles. The certain principles that govern, guide and help in the eventual preparation and presentation of the Financial Statements are referred to as the accounting principles. Accounting principles are comprehensively set out by IFRS and GAAP. IFRS is the abbreviation for the International Financial Reporting Standards whereas GAAP is an abbreviation in relation to Generally accepted accounting principles.