Business entity concept

In Ontario, your business may take one of four structures : sole proprietorship, partnership, corporation, or cooperative. But regardless of whether or not your company’s structure makes it a separate legal entity, your company’s accounts must be kept separate and distinct. This is a fundamental accounting principle known as the the business entity concept. Company financial statements must not contain any personal accounts or those of another business.

When accounting, it is essential to know for which type of entity you are keeping accounts, as this will determine if and how you record certain transactions. For example, if a sole proprietor named Mr. X runs a business called BioGreen (not a separate legal entity), you will need to account for events that are non-events from a legal perspective (given Mr. X and Biogreen are a single entity) but nevertheless require separate accounting due to the business entity concept. For example, the accounting record would document a deposit by Mr. X into a separate account for BioGreen.


Markle, K. (2004, August).Introduction to Accounting. Presentation delivered at Schulich School of Business, York University, Toronto, Canada.
. Retrieved October 24, 2008.