The economic entity principle is a foundational concept in accounting that requires business entities to be treated as separate legal and financial entities. This means that all financial transactions of the company should be recorded separately from those of the owner. The principle ensures that the financial position of the company is accurately reflected in its financial statements. Limited liability is a legal principle that provides protection to business owners from personal financial losses if the company goes bankrupt. This means that the shareholders are not liable for any debts or liabilities incurred by the company.