What is Separate Entity system ?

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Accepted Answer

Separate Entity system is a concept in accounting where a business is treated as a distinct entity from its owners.

Separate Entity system is also known as Entity Theory.
It means that the business is considered a separate legal entity from its owners.
The business has its own assets, liabilities, and equity, which are separate from those of the owners.
This concept is important in accounting as it helps to ensure that the financial statements of the business are accurate and reliable.
For example, if a business owner uses company funds for personal expenses, it would be considered a violation of the Separate Entity system.
This concept is also important for tax purposes, as the business is required to file its own tax returns separate from those of the owners.

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