What concept does the Entity Assumption subscribe to?

The Entity Assumption, also known as the Economic Entity Assumption, is a fundamental accounting principle that states a business must be accounted for separately from its owners or other businesses. This means that business finances should be treated distinctly from personal finances.

By maintaining this separation, businesses can clearly track their financial performance, assess profitability, and understand the financial position without the confusion that can arise from mixing personal and business transactions. This separation is crucial for accurate reporting and compliance with legal and tax obligations, providing clarity in accounting records that allows for better decision-making and financial analysis.

The other options either suggest a merging of personal and business finances or focus on transaction types that do not align with this principle, thus highlighting the clear boundary that the Entity Assumption is designed to enforce.