For financial reporting, the economic entity assumption clarifies the link between you and your company. Your legal and financial identity as a small-business owner is inextricably linked to the identity of your firm. You and your incorporated business, on the other hand, are independent entities for accounting and economic reporting purposes.
Violation of the Economic Entity Assumption
Separate bank accounts are required to keep your personal and corporate financial dealings separate. Even if sole proprietorships are not compelled by law to do so, it is a good idea to keep a separate bank account. The failure of corporations to keep economic entities distinct is known as economic entity assumption violation. At the very least, your accountant will be inconvenienced by this failure. In the worst-case situation, it might be a tax evasion.
