Final answer:
The accounting principle that keeps a business's finances separate from the personal finances of the owner is the Entity Principle. This principle ensures accurate financial reporting by establishing clear boundaries between business and personal transactions.
Step-by-step explanation:
The accounting principle that requires a business and its financial transactions to remain separate and distinct from the owner's personal financial transactions is known as the Entity Principle. This principle is fundamental in accounting as it ensures that the business's records only reflect transactions related to the business itself, not the personal dealings of the owner. For clarity, let's look at each option provided in the question:
- Matching Principle - This principle states that expenses should be matched with the revenues they help to generate in the same accounting period.
- Entity Principle - This principle separates the business's finances from the personal finances of the owner or any other entity. It maintains clear boundary lines, which are crucial for accurate financial reporting and analysis.
- Conservatism Principle - This principle suggests that when faced with two equally likely solutions, the accountant should choose the option that will result in less asset overstating and/or profit overstatement.
- Going Concern Principle - This principle assumes that a company will continue to operate indefinitely, unless there is evidence to suggest otherwise.
Thus, the correct choice in this case is b. Entity Principle.