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Successful businesses know that accurate record-keeping is not only essential for accounting but also provides infor m ation that can be a key source of competitive advantage.

 Accounting and bookkeeping. ‘Accounting’ can be defined as the provision of financial information concerning the results of a business over a period of time. A business needs to ‘account’ for what it has done and accounting is a process of recording, analysing and summarizing commercial transactions. The term ‘bookkeeping’ generally refers to just the recording of transactions.

case study Tom runs a computer services company and understands the benefits of recording, analysing and summarizing all business transactions. The list opposite shows the information about customers that Tom finds useful to record. It is a list that millions of other companies around the world also compile about their customers:

 Key contact information

 Sales to date

 Forecasted sales

 Credit rating

 Money owed by date

 Distribution costs

 Discounts offered and taken

 Separate legal entity. A fundamental principle of accounting is that a business is a separate entity from its owner. For ‘limited’ companies the concept of separate entity is a legal distinction. As such, business transactions should never be mixed with the personal transactions of the owners, which is also advisable for other business entities. In addition, for ‘limited’ companies there is a statutory requirement to maintain proper accounting records.

 Management and financial accounting. Once transactions are recorded they need to be analysed and summarized. ‘Management accounting’ is the use of this data within a business for management information, planning, decision making, and control purposes. ‘Financial accounting’ is the use of this data to report financial results and the latest position of a business to a number of interested parties, for a number of different purposes. See Secret 1.7 for more detail on the differences between financial and management accounting. See Secret 2.9 for more information on the users of accounts.

 Users of financial information. All users of financial information require quality information which is both relevant and reliable. Therefore it essential that the transactions which underpin this information are properly recorded, analysed and summarized.

Keeping accurate records of business transactions is valuable in many ways.