Totally Booked - Choosing Between Single and Double-Entry Bookkeeping For Your Business
Bookkeeping is one of the most important parts of every business. A good bookkeeping system is necessary to help keep track of financial transactions and other important financial documents, all of which are essential to the survival of your business. Even if finance is not your strong suit, you still must make certain decisions in order to set up a good accounting system for your company.
One decision you will have to make is whether to use single or double-entry bookkeeping. This article will help you make that decision by outlining each bookkeeping method in detail.
Single-entry bookkeeping is suitable for small-sized businesses with a low volume of activity. This accounting method is very similar to keeping your personal checkbook. Single-entry bookkeeping is used to record cash, tax-deductible expenses, and taxable income. The main characteristic of this bookkeeping method is that one single entry is made for each transaction. You can think of it as a bigger version of a cash register. There can be more than one column in your single-entry bookkeeping, including revenue and expenses, and it would still be considered as single-entry as there will only be one line for each transaction.
It is important to note that single-entry bookkeeping is not suitable for big and complex companies. This type of bookkeeping does not record accounts such as inventory, accounts payable, and accounts receivable. This means that, while you can use single-entry bookkeeping to work out your net income, you cannot use it to generate a balance sheet or track the asset and liability accounts. In short, transactions recorded in single-entry bookkeeping are a single entry, which keeps the process easy and simple for small business owners.
Double-entry bookkeeping is used by big and small businesses alike. This accounting method is characterized by each account having two columns and each transaction being in two accounts. For each transaction, two entries are made: a debit and a credit in each account. Because a debit in one account counterbalances the other, the sum of debits should always be equal to the sum of credits. For example, if you want to pay off a creditor, the amount that you owe the creditor would reflect in the debit column, and the same amount should be the same in the credit column as well.
This bookkeeping system should be used instead of a single-entry bookkeeping if you want to keep track of asset and liability accounts. Another advantage of double-entry bookkeeping is that it allows the business owner to calculate profit and loss accurately regardless of how big or complex the company is. Moreover, with double-entry bookkeeping, you can prepare financial statements directly from the books. It is also easier to spot errors and fraud when using this bookkeeping method.
The decision as to whether you should opt for single or double-entry bookkeeping will largely depend on the nature of your business and what it needs. For small businesses with minimal accounting needs, the single-entry bookkeeping method will suffice. If you need to keep track of your asset and liability accounts in an accurate and effective manner, then double-entry bookkeeping is more suitable for you. Note that for the double-entry bookkeeping system, a deep accounting knowledge might be required. In this case, hiring a skilled and experienced accountant to handle your bookkeeping tasks may be a good idea.
Totally Booked offers bookkeeping by QuickBooks Certified ProAdvisors based out of NYC. Get in touch today to see how we can help!