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Accounting Entity

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Transcript

Okay, so in this first lecture, we're going to be talking about the counting entity principle. What this principle is about, it's about understanding the difference between your personal perspective. As opposed to the business's perspective. It's about treating the business as its own legal entity and separating the transactions from what happens to the shareholders individual personal transactions. And why do we do this? Well, there's a couple of reasons why we do this.

First of all, it's important to have a single entity perspective, in order to measure how the business is actually performing. If we started including a lot of personal transactions into the business's performance, it would actually muddy the waters can be very difficult to actually understand how the business is performing as opposed to help Help, what kind of personal transactions go into the business. And another key reason is that it provides better governance. So that legally, you've got separate transactions occurring in a business as opposed to your individual. This may actually be quite useful if you ever want to sell the business. Because if you've got the business transaction separate to the personal transactions, it's a lot easier to package this up and sell it to prospective shareholder who wants to buy the business.

So this principle is important to understand. So they always think of every single transaction from the businesses perspective. As we go through further material in the future, I want you to always be thinking from a particular business's perspective. Okay, so now we'll be moving on to the period concept.

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