Which term describes the entity that authorizes an agent to act on its behalf?

Which term describes the entity that authorizes an agent to act on its behalf?

• A. Principal
• B. Contract
• C. Going Concern Principle
• D. Asset Turnover Ratio

Answer: (A)

In agency relationships, the entity that grants authority to someone else to act on its behalf is the principal. The principal delegates tasks or decision-making power to the agent, who then acts under that authority and can create legal and financial effects for the principal. The other terms don’t describe a party in the relationship: a contract is just the agreement setting up the arrangement, the Going Concern Principle is an accounting assumption about ongoing operations, and the Asset Turnover Ratio is a metric measuring how efficiently assets generate sales. Thus, the term that best describes the entity authorizing the agent is the principal.

In agency relationships, the entity that grants authority to someone else to act on its behalf is the principal. The principal delegates tasks or decision-making power to the agent, who then acts under that authority and can create legal and financial effects for the principal. The other terms don’t describe a party in the relationship: a contract is just the agreement setting up the arrangement, the Going Concern Principle is an accounting assumption about ongoing operations, and the Asset Turnover Ratio is a metric measuring how efficiently assets generate sales. Thus, the term that best describes the entity authorizing the agent is the principal.