One of the most important factors associated with accounts is specific distinction that is made in regards to various aspects. Quite similarly, in comparison to other fields, in case of accounts, business, and proprietors are differentiated.
Differentiation of individuality:
In accounts, business in itself has a specific identity, and it is removed from control of proprietors or even other units of that business. It is only business that is concerned and not the set of businessmen operating in that domain. Since accounting in business is taken in regards to only a firm, hence viewpoint of proprietors are not taken into consideration.
Decisions associated with assets, capital, liabilities, revenue, and expenses are all taken into consideration from a business related point of view. Every transaction that is recorded is placed in regards to books of that company, rather than in books of partners and shareholders.
A certain amount of capital that is invested into the business by a proprietor is termed as liability for the business, but not for proprietor himself. This is so because, in certain cases, it so happens that for a business, its funds fall short. In such a scenario, a business venture needs to take loan from an external agency. That money which is taken is termed as a liability for that company.
So, similarly, when a proprietor invests his or her money into that business, for that business it becomes a liability considering it to be taken from an external source. Also, in certain cases, an interest rate is applied to that amount which is beneficial for the proprietor.
However, it needs to be remembered that this extra installment that is being paid reduces profit rate of that business, while it is proprietor’s claim against the business which improves profit amount. At the same time, amount that is withdrawn by the proprietor is taken as his liability while considered as asset to the firm.
Further functionality of business:
Every transaction that is made is locked into Accounts books, and reports are sent to concerned parties, sole traders, partners, and shareholders. In most cases, a single company is owned by a set of people, who are legally absent from the domain and it is the directors of the company who deal with it.
Once accounts are prepared by the finance department, keeping in terms with principles of business entity, it is imperative that copies of it be distributed to every member of that company. Starting from shareholders of that company, to its owners, everyone is to have detailed information of that financial report.
Speaking in legal terms, sole proprietor is not separate from, business when dealing at a larger scale, however in accounting business is a completely separate entity that has to be understood on a singular note.