Proprietary Theory
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Proprietary Theory
Theory that assets are owned by the proprietor and liabilities are owed by him. The accounting equation is: Assets - Liabilities = Capital Capital is the net value of the business to the owner.
Under the proprietary theory, revenues increase capital, while expenses reduce it. Net income belongs to the owner, representing an increase in the proprietor's capital.
The proprietary theory best applies to single proprietorship entities because there exists a personal relationship between the management of the business and the owner. Often, in fact, they are the same person.
It also applies to a partnership where net income is added each period to the partners' capital accounts.
Under the proprietary theory, revenues increase capital, while expenses reduce it. Net income belongs to the owner, representing an increase in the proprietor's capital.
The proprietary theory best applies to single proprietorship entities because there exists a personal relationship between the management of the business and the owner. Often, in fact, they are the same person.
It also applies to a partnership where net income is added each period to the partners' capital accounts.
| Proprietary Fund, Property, Plant,and Equipment, Property Dividend | |
| Proprietorship, Proration, Prospectus |
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Barron's Accounting Dictionary
Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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