Accountants commonly refer come a business organization as an accounting entity or a business entity. A company entity is any business organization, such together a hardware save or grocery store, the exists together an financial unit. For accounting purposes, each business organization or entity has an presence separate indigenous its owner(s), creditors, employees, customers, and other businesses. This separate existence of the business organization is well-known as the business entity concept. Thus, in the accountancy records of the company entity, the tasks of each company should be retained separate indigenous the tasks of other businesses and also from the personal financial activities of the owner(s).

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As friend will view shortly, the business entity concept applies to the four main forms of businesses—single proprietorships, partnerships, and corporations. Thus, for accounting purposes, all four service forms are separate from other organization entities and from their owner(s).

Accounting is necessary for all develops of service organizations, and each firm must follow usually accepted bookkeeping principles (GAAP).


The develops of organization entities disputed in the previous ar are classified follow to the kind of property of the business entity. Business entities can additionally be group by the kind of business tasks they perform—service companies, merchandising companies, and also manufacturing companies. Any type of of these tasks can be performed by companies using any kind of of the three develops of service organizations.

Service companies do services for a fee. This team includes audit firms, legislation firms, and also dry clean establishments.


Merchandising companies purchase products that are ready for sale and then market them to customers. Merchandising companies incorporate auto dealerships, clothing stores, and supermarkets.

Manufacturing companies to buy materials, convert them into products, and then sell the commodities to various other companies or to the last consumers. Production companies include steel mills, auto manufacturers, and clothing manufacturers.

All of these companies produce financial statements as the final finish product of their accounting process. This financial statements provide relevant financial info both to those inside the company—management—and to those exterior the company—creditors, stockholders, and also other interested parties. The next section introduce four typical financial statements—the revenue statement, the statement of kept earnings, the balance sheet, and also the explain of cash flows.

Important Points to Remember

Business entity is any business organization, such together super market, or accountancy firm, the exists together an financial unit.Business entity principle states that a organization must be keep bookkeeping records different from its owner or other businesses.Ownership in business entities can be a single proprietorship, partnership, or corporation. From the audit perspective and also its objective these types of company are thought about separate reality from their owners. The copy, group is just one taken into consideration as a different legal entity.A business can it is in a service company, merchandising company, or a manufacturing company.


Asset Things of value owned through the business. Examples encompass cash, machines, and buildings. To your owners, assets possess company potential or utility that deserve to be measured and also expressed in money terms.

Business entity is any type of business company that exists as an economic unit.

Liabilities Debts fan by a business—or creditors’ equity. Examples: notes payable, accounts payable.

Stockholders’ same The owners’ attention in a corporation.

Sole proprietorships are service entities own by one solitary person.

Partnerships are business entities owned by at least two people.

Corporations are service entities owned by one human being or many civilization called shareholders.

Service firm is a business entity that offers services come the public and also does not offer a product.

Merchandising companies are company entities selling a product and possibly a service to the public. A merchandising firm purchases the products to be sold from exterior vendors.

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Manufacturing carriers are organization entities selling a product to the general public that is made by the company using life materials, direct labor and overhead.