Accounting involves the recording of financial transactions, planned or actual, and the use of these figures to produce financial information. Anyone who wants to understand a business well needs to pay close attention to the business's accounts.

A business must record all of the money coming into the business (from sales) and all of the money going out such as expenses. Failure to do this may see a business missing payments from customers, forgetting to pay their own bills or in trouble with HMRC. It is vital that all transactions are recorded accurately.

A manager is responsible for the planning, monitoring and controlling of the resources for which they are responsible. A manager who clearly understands the business's accounts will be able to make informed decisions and plan for the future. Management of a business involves careful co-ordination of resources including staff, materials, stock and money. The manager must ensure there are sufficient funds to pay wages, order new stock, pay bills and meet other demands for cash outflows by balancing this with the money coming in from sales.

Financial reporting is governed by laws and regulations. This is to ensure that any financial records give a fair and accurate picture of the business. It is important that businesses comply with these laws and regulations in order to ensure that investor's and other stakeholders are not misinformed. Compliance will also help protect against fraud. Fraud is when company monies are used inappropriately or acquired by the wrong person for personal gain.

Without financial records it would be impossible to know if the business was making a profit or loss, or whether the business owed money or was owed money. Key indicators of financial performance include:

Profit- Surplus achieved when total revenue(income) from sales is higher than the total costs.

Loss- Shortfall suffered when total revenue from sales is lower than the total costs of a business

Sales Revenue- The quantity sold times the selling price.

Gross Profit- This is the amount of profit left when the cost of producing the good/service is deducted from the sales reveneue.

Net Profit- This is the smaller amount of profit made after all other expenses are deducted from the gross profit.

Value Owed to the Business- This is the amount of money owed to the business from sales that have not yet been paid for.

Value owed by the business- This is the amount of money the business owes to others for goods or services purchased but not yet paid for.

Accounting will control the flow of money into and out of the business by maintaining accurate records and monitoring performance. This should mean that any unusual activity is spotted, helping to prevent fraud. It will also, therefore, track the amount of money the business is owed, trade receivables, from the sale of goods and the amount the business owes trade payables. This will help ensure that the business can meet its day-to-day expenses. If trade receivables and payables are not carefully controlled, there is a danger that the business may not be able to survive. This will also involve credit control which aims to ensure that all money owed to the business is paid on time.