The business entity concept, also known as the economic entity assumption, states that all business entities should be accounted for separately. In other words, businesses, related businesses, and the owners should be accounted for separately. Even though the tax law looks at a sole proprietorship and the owner as one entity, GAAP disagrees. The owner and the business are two separate entities and should be accounted for separately. The same goes for partnership and corporations. The partners and shareholders’ activities should be kept separate from the partnership and corporate transactions because they are separate economic entities.