Question

Is there a difference in the "owner" of the company in the perspective of Proprietary, Entity, and Entreprise theory? What do you think of Fund theory's view?

Answer 1

If we are working to think about Business theory & Entity theory. It states that accounting is required for businesses to understand their profit & losses. And on the same side think about the Proprietary theory it assesses the business as an addition of the owners and the theory believes that the business is not separate from its owners. As we all are known about the best accounting concept for the above is “Business Entity Concept”. As per business entity concept, owners and businesses are distinct entities, and thus, any contribution by owners by way of capital is a liability. Because the concept tales about the business are distinct from each other (i.e. Business & owner) thus the transaction of business only is to be recorded in the books of account.

Now the main topic is Fund theory: The fund theory highlighted neither the proprietor nor the entity but a group of assets and related obligations and restrictions governing the use of the assets called a “fund.” There are three categories of Fund, one is Long term fund, second is Short term, and the last one is medium-term.

If go with the one by one like Equity share capital, Debenture, Preference share capital, Term loan (i.e. Rupee loan, foreign currency loan), Retained earnings (Plough back of profits), a Term loan from banks,

Another one is short term: - Credit from trade from expenses creditors, banks Advances, Factoring, Commercial papers, Public deposit, Inter Corporate deposit,

Last One is Medium-term: - Debentures, Bonds, Public Deposit, Loan from a financial institution. Etc. some of the above content categories into the owner’s funds, & Borrowed funds.

Thus, the fund theory views the business unit as consisting of economic resources (funds) and related obligations and restrictions in the use of these resources.

Goodluck.....