Accountants generally refer to a service organization as an accounting entity or a business entity. A organization entity is any kind of business organization, such as a hardware save or grocery store store, that exists as an financial unit. For accountancy purposes, each organization organization or entity has actually an visibility separate indigenous its owner(s), creditors, employees, customers, and other businesses. This separate presence of the business organization is known as the business entity concept. Thus, in the accounting records of the service entity, the tasks of each company should be preserved separate from the activities of other businesses and also from the personal financial activities of the owner(s).

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As friend will see shortly, the company entity concept uses to the 4 main forms the businesses—single proprietorships, partnerships, and also corporations. Thus, for accounting purposes, every four company forms are different from other organization entities and from their owner(s).

Accounting is crucial for all forms of service organizations, and also each company must follow typically accepted bookkeeping principles (GAAP).


The creates of company entities discussed in the previous section are classified according to the kind of ownership of the organization entity. Organization entities can likewise be grouped by the form of business tasks they perform—service companies, merchandising companies, and manufacturing companies. Any of these tasks can be performed by suppliers using any type of of the three creates of company organizations.

Service companies execute services for a fee. This group includes bookkeeping firms, regulation firms, and dry clean establishments.


Merchandising companies purchase products that are all set for sale and also then sell them come customers. Merchandising companies encompass auto dealerships, clothing stores, and also supermarkets.

Manufacturing companies purchase materials, transform them right into products, and also then sell the assets to other companies or come the last consumers. Manufacturing companies include steel mills, auto manufacturers, and clothing manufacturers.

All of these companies develop financial statements as the final end product of their bookkeeping process. These financial statements provide relevant financial details both to those inside the company—management—and come those exterior the company—creditors, stockholders, and also other interested parties. The following section introduces four common financial statements—the revenue statement, the declare of kept earnings, the balance sheet, and also the declare of cash flows.

Important Points come Remember

Business entity is any business organization, such together super market, or accountancy firm, that exists together an financial unit.Business reality principle states the a company must it is in keep audit records separate from its owner or other businesses.Ownership in company entities have the right to be a sole proprietorship, partnership, or corporation. From the accountancy perspective and its objective these types of organization are thought about separate entities from their owners. The coporation, group is only one thought about as a separate legal entity.A business can be a organization company, merchandising company, or a production company.


Asset Things of worth owned by the business. Examples encompass cash, machines, and buildings. To their owners, legacy possess company potential or energy that can be measured and also expressed in money terms.

Business reality is any kind of business organization that exists together an financial unit.

Liabilities Debts fan by a business—or creditors’ equity. Examples: note payable, accounts payable.

Stockholders’ same The owners’ interest in a corporation.

Sole own are organization entities owned by one single person.

Partnerships are business entities own by at least two people.

Corporations are business entities own by one person or many people called shareholders.

Service company is a organization entity that offers services to the public and also does not offer a product.

Merchandising service providers are organization entities offering a product and possibly a company to the public. A merchandising company purchases the commodities to be marketed from external vendors.

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Manufacturing suppliers are company entities selling a product to the public that is do by the company using raw materials, straight labor and also overhead.