Definition of Economic Unit and Its Principle

Definition: An economic unit is an economic entity that is separate and independent accounting-wise and financially from its owners and from other economic units, whether it's a company, institution, or organization. It's characterized by having specific and separate economic activities, independent financial resources, and individual financial statements that reflect its financial position and business results. An economic unit can be a sole proprietorship, partnership, corporation, government institution, or non-profit organization, with the criterion being accounting independence rather than just legal form.

Principle: The economic unit principle states the necessity of complete separation between the funds, operations, and transactions of the economic unit and the personal funds and transactions of its owners, managers, or other economic units. This means that each economic unit is treated as a separate legal personality with independent financial liability, its transactions are recorded in separate accounting books and records, and independent financial statements are prepared showing its true financial position without interference with other units. Even if the unit is owned by one person, it's treated accounting-wise as a separate unit from that person's personal funds.

Types of Economic Units (Private and Government)

Economic units are divided into two main types based on ownership and objectives:

Private Economic Units:

• Sole Proprietorships: Owned by one person, unlimited liability, direct management by owner, profits subject to personal taxation
• Partnerships: General and limited partnerships, joint liability, profit distribution according to agreement, dissolution upon partner withdrawal
• Corporations: Joint stock and limited liability companies, limited liability, capital divided into shares or stakes, management separate from ownership
• Private Non-profit Institutions: Charitable associations and foundations, aimed at social work, tax-exempt

Government Economic Units:

• Ministries and Agencies: Provide basic services, funded from general budget, subject to direct government oversight
• Government Companies: State-owned, conduct commercial activities, may aim for profit or public service
• Public Institutions: Government universities and hospitals, specialized services, relative administrative independence
• Independent Authorities: Communications and electricity authorities, financial and administrative independence, indirect oversight

Basic Differences: Ownership differs between private sector (individuals or shareholders) and government (state). Objectives vary where private units seek profit, growth, and expansion, while government units focus on providing public services and achieving social justice. Funding sources include private capital and commercial loans for private units, versus general budget and taxes for government units. Oversight is internal and external from auditors and shareholders for private units, while government units are subject to audit bureau oversight and specialized government regulatory bodies.

Objectives and Functions of Economic Units

Economic units seek to achieve various objectives, primarily profit achievement as a main goal for private units, and providing public services for government and non-profit units. They also aim for growth and expansion by increasing activity volume and market share, in addition to ensuring continuity and sustainability of the unit's operations.

Functionally, economic units perform production roles by converting available resources into useful goods and services, and distribution functions to deliver these products to consumers. Units manage financing by collecting and managing financial resources necessary for operations, and contribute to employment by creating job opportunities and developing human resources. Finally, they perform development and innovation functions to improve products and services.

All economic units work in integration to achieve comprehensive economic and social development for society.