The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

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The economic entity assumption is a fundamental accounting principle that requires entities to be treated as separate economic units, which means that transactions, assets, liabilities, and expenses are recorded separately for each entity, and the personal finances of the owner are not mixed up with the business's finances. This principle helps ensure accurate accounting records and financial statement reporting.

The Economic Entity Assumption Requires That the Activities of an Entity