Introduction: Q7

Q7: What is the proprietorship concept?

A:

The key idea underlying double-entry accounting is an awareness of there being a proprietor or owner of a firm who is separate and distinct from the firm itself. This is the entity concept in accounting where the activities of a firm are kept separate from those of the firm’s owners. Subsequently, this idea has been reflected in our legal system as we have created the idea of companies that have a separate legal identity and existence to that of their owners. The entity concept in accounting applies to any type of firm, regardless of whether the firm has a separate legal identity from its owners or not.

The realisation that a firm can be seen to be separate from the proprietors or owners of a firm introduces a duality to all transactions of a firm. This is because all transactions involving a firm will affect not only aspects of the firm itself but also the wealth or interests of the firm’s proprietors or owners. This is true of every transaction or economic event affecting a firm. Every single one. Double-entry accounting simply reflects this view or way of looking at business reality.

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