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Dear John,
Which of the following statements defines the business entity concept?
A- The business will continue to operate for a foreseeable future.
B- A business is always a separate legal entity, distinct from those who own or manage that business
C- A business is never a separate legal entity, distinct from those who own or manage that business
D- Financial transactions are recorded and presented from the perspective of the business, rather than from the perspective of the owners or managers of that business.Answer given = D
I was just wondering, why is B incorrect? I thought the business entity concept should treat the business as separate from their owners. Isn’t it the same meaning with B?
Thank you 🙂
For a limited company the business is a separate legal entity.
For a sole trader however, the business is not separate in law – the business is the owner (even though we record transactions for the business separately – that is the concept).
The free lectures on chapter 1 of the lecture notes will help you with this.
(Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.)
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