The business entity concept means that

• A. an entity is organized according to state or federal statutes
• B. the owner is part of the business entity
• C. the entity is an individual economic unit for which data are recorded, analyzed, and reported
• D. an entity is organized according to the rules set by the FASB

Answer: (C)

The business entity concept treats the business as its own economic unit separate from its owner, so its financial records are kept and reported for that entity alone. This means personal transactions aren’t mixed with the business’s, and the financial statements reflect only the business’s activities and results. The description that best fits this idea is that the entity is an individual economic unit for which data are recorded, analyzed, and reported. Statements about legal formation or standard-setting describe other aspects of business and accounting practice, not the separation of the business from the owner.