Dictionary of Accounting Terms: entity theory
entity theory
view in which a business or other organization has a separate accountability of its own. It is based on the equation:
Assets = Liabilities + Stockholders' Equity
The entity theory considers liabilities as equities with different rights and legal standing in the business. Under the theory, assets, obligations, revenues, and expenses and other financial aspects of the business entity are accounted for separately from its owners. In other words, the company has an identity distinct from its owners or managers.The firm is viewed as an economic and legal unit.
