An accounting entity is a business for which a separate set of accounting records is maintained. The organization should engage in clearly identifiable economic activities, control economic resources, and be segregated from the personal transactions of its officers, owners, and employees. Examples of accounting entities are corporations, partnerships, and trusts.
Once established, a chart of accounts and accounting policies are created for an accounting entity, which form the basis for a separate system of accounting. Business transactions are then recorded in a general ledger that reflect the ongoing activities of the entity. The outcome of these recordation activities is financial statements that are specific to the accounting entity.
The accounting entity concept is used to establish the ownership of assets and obligation for liabilities, as well as to determine the profitability of a specific set of economic activities.