Separate Entity Concept

Separate entity concept is an essential concept of accounting, it means in accounting business and owners of the business are considered separate from each other. Therefore, personal expenses and revenue of the owners should not be considered in business accounts. Only business related transactions should be accounted for.


A company acquired an office on rent for $4000. The office has 4 rooms but the owners of the company use only 3 rooms for business operations. Therefore, only $3000 should be considered as rent expense instead of $4000.