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SSC Financial and Cost Accounting P-1 QUESTION #9631
Question 1
The Separate Entity Concept requires that:
  • The business must be legally incorporated as a separate company
  • For accounting purposes, the transactions of the business are recorded independently of the personal transactions of its owner✔️
  • Only a joint-stock company qualifies as a separate entity
  • The owner cannot withdraw funds from the business under any circumstances
Correct Answer Explanation
The Separate Entity Concept is an accounting assumption (not a legal requirement) applicable to all forms of business — sole proprietorship, partnership, and companies alike. It means that from an accounting perspective, the business is treated as a distinct entity separate from its owners. The owner's personal transactions are not recorded in the business books.