Business entity convention

The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner’s personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities. For example, Michael is a business organization operating as a travel agency. Its owners may have personal bank accounts, homes, cars, and even other businesses. These item are not involved in the operation of the travel agency and do not appear in Michael’s financial statements.