6 KEEPING A RECORD

A business maintains detailed records of its sales, purchases, receipts and payments. There are several reasons for keeping records.

• A business needs to keep track of how much it owes to its suppliers and how much it is owed by credit customers.
• Records of transactions, such as sales and purchases, are useful in the event of a query or dispute with a customer or supplier.
• Keeping records of transactions enables checks to be carried out to ensure that they have been properly processed, and that there have been no errors or omissions for any reason, including fraud.
• Keeping records of sales, purchases and other transactions enables a business to monitor how well it is performing, and whether it is making a profit or a loss.

Similar reasons apply to maintaining petty cash records. Payroll records must also be maintained to ensure that employees are properly rewarded for their work and to ensure that the correct deductions (e.g. for taxation) are made.

Transactions are recorded in ledger accounts. The system of recording transactions is therefore called the accounting system or the bookkeeping system. The system organises transactions into sets of structured ledger accounts. Accounting records will be explained in subsequent chapters.

To maintain records, it is important to retain documents that provide evidence of transactions. Chapter 2 reviews these documents in some depth.