The requirement for every business to be accounted for separately, often referred to as maintaining separate accounting or financial records, is based on several important principles and reasons:

1. Legal and Regulatory Compliance: Many countries and jurisdictions have laws and regulations that mandate the separation of financial records for different businesses, especially those operating under distinct legal structures. For example, corporations, limited liability companies (LLCs), partnerships, and sole proprietorships are typically required to maintain separate financial records to ensure legal compliance.
2. Taxation: Tax authorities require businesses to maintain separate financial records to accurately calculate and report taxes owed. Separation of financial records helps ensure that income, deductions, and credits related to each business entity are properly accounted for and reported for tax purposes.
3. Limited Liability Protection: Maintaining separate financial records is critical for preserving limited liability protection. Businesses, such as corporations and LLCs, are considered separate legal entities from their owners (shareholders or members). Commingling business and personal finances can jeopardize limited liability, potentially exposing personal assets to business liabilities.
4. Financial Transparency: Separating financial records promotes financial transparency and accountability. Clear financial statements for each business entity allow owners, investors, creditors, and other stakeholders to assess the financial health and performance of each business independently.
5. Credit and Financing: Lenders and creditors often require separate financial statements for each business entity when evaluating creditworthiness or extending financing. Clear financial records help creditors assess the financial stability and repayment capacity of each business.
6. Audit and Due Diligence: In cases of financial audits, due diligence, or potential mergers and acquisitions, having well-organized, separate financial records for each business entity simplifies the review process and ensures accurate assessments of assets, liabilities, and financial performance.
7. Business Analysis and Decision-Making: Separate accounting allows owners and managers to analyze the financial results and performance of each business independently. This is crucial for making informed decisions, setting financial goals, and evaluating the profitability of individual business segments.
8. Compliance with Accounting Standards: Generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) often require separate financial reporting for different business entities to ensure consistency and comparability in financial statements.
9. Legal Disputes and Liability Claims: In the event of legal disputes or liability claims, maintaining separate financial records can help demonstrate the financial independence of each business entity and protect the assets of unrelated businesses from being used to satisfy claims against one entity.
10. Estate Planning and Succession: When planning for estate matters or business succession, maintaining separate financial records is crucial for accurately valuing each business and determining the distribution or transfer of assets to heirs or successors.

Business owners need to understand the legal and financial implications of maintaining separate accounting records for each business entity. Failure to do so can lead to legal, tax, and financial complications, including the loss of limited liability protection and potential legal liabilities. Consulting with legal and financial professionals can help ensure compliance and proper financial management for each business.