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.