Mike Derr owns both Sailing Passions and Dockside Digs. In preparing financial statements for Dockside Digs, Mike makes sure that the expense transactions of Sailing Passions are kept separate from Dockside Digs's transactions and financial statements.

a. Measurement (cost) principle

b. Expense recognition (matching) principle

c. General accounting principle

d. Going-concern assumption

e. Business entity assumption

The correct answer is e. Business entity assumption.

Explanation:

The entity principle or entity principle establishes the assumption that the company's assets become independent of the owner's personal assets, considered as a third party. A separation is made between the property (shareholders or partners or owner) and the administration (management) as an indispensable procedure to account for the latter. The entity has a life of its own and is subject to rights and obligations, different from the people who formed it.

The owners are creditors of the companies they have formed and although they have several companies, each one is treated as a separate entity, so the owner is one more creditor of the entity, which is accounted for with the capital account.