Shareholder equity is treated as a liability of the firm. This is based on which of the following concept?
Financial accounting is based on the premise that the transactions and balances of a business entity are to be accounted for separately from its owners. The business entity is therefore considered to be distinct from its owners for the purpose of accounting. This necessarily means that the liabilities of the company belong to the company alone and in case of any default the creditors cannot ask or expect the shareholders to pay from their personal belongings. This also leads to the fact that shareholders are also outsider for the company and hence appear on the liabilities side of the balance sheet.
