Running a business is a challenging task, and managing business books is an even more daunting task. When it comes to managing business books, you need to decide to choose between single-entry and double-entry bookkeeping for your business. You can make the right decision only if you know the basics of these types of bookkeeping. To get in-depth information about these types of bookkeeping, continue reading this blog.
What is Single-Entry Bookkeeping?
The most common method used for bookkeeping is a single-entry system. As the name suggests, it features one entry for each transaction. It would be the best option for small business owners and uncomplicated businesses. With single-entry bookkeeping, you can easily record transactions like cash, taxable income, and tax-deductible expenses. However, you are allowed to add revenue and expenses in a two-column ledger with every transaction on one line. Bookkeepers for small businesses can use accounting software or a spreadsheet to manage single-entry bookkeeping. Typical single-entry bookkeeping consists of the following details:
• Transaction description
• Transaction value, can either be an income or an expense
Benefits of Using a Single-Entry Bookkeeping System
The following are some advantages of using a single-entry bookkeeping system:
• Easy and Simple to Manage
Single-entry bookkeeping is quite simple and easy to manage, which makes it the right choice for business owners with less complex bookkeeping. When you choose small business bookkeeping in Melbourne, then bookkeepers may suggest single-entry bookkeeping. Additionally, it doesn’t have complex rules for financial recording.
• Easy to Check Profit
A single-entry bookkeeping system enables you to calculate the losses or profits of your business. As a result, you can have an idea of the financial status of your company and areas you need to minimise costs. Small business bookkeepers in Melbourne can help you where you should cut extra costs to help you save money.
• Suitable for Service-Based Businesses
Single-entry bookkeeping is the ideal choice if you have a small service-based business.
Double-Entry Bookkeeping System
A double-entry bookkeeping system includes recording financial transactions in two accounts – credit and debit accounts. It is based on the rule of duality, each transaction can have an impact on both accounts simultaneously. One account is credited while the other is debited. At the end of the financial year, the total credits need to be equivalent to the total debits. As a result, small business bookkeepers can easily identify errors with a double-entry bookkeeping system due to the formula it is based on:
Assets = Liabilities + Equity
Benefits of Double-Entry Bookkeeping System
The following are some benefits of a double-entry bookkeeping system:
• Identifies Fraud and Ensures Accuracy
Bookkeepers can easily detect and solve problems with a double-entry method. Every transaction is recorded on two accounts, and the debits and credits must balance. As a result, there is little to no chance of errors, misappropriation, or fraud.
• Complete Accounting System
The double-entry bookkeeping system features real, personal, and nominal accounts. Hence, you can easily produce financial reports from the accounts since all the adequate information is available.
• Systematic and Scientific System
When using double-entry bookkeeping, it is important to follow specific rules for recording financial transactions when using it, that’s why it is known as a scientific system.
• Produce a Trial Balance
This type of system enables you to produce an income statement and balance sheet that results in the trial balance. You can track your business growth and check out revenue and expenses using information on an income statement. As a result, it becomes easy to make decisions about what areas need investment and where you should cut extra costs.
Difference between Single-Entry and Double-Entry Bookkeeping
• The single-entry system records cash that flows in and out of business- expenses and revenue. On the other hand, a double-entry system records assets, expenses, liabilities, and equities.
• Bookkeepers using a single-entry system record revenue when it flows in and expenses when it flows out. In contrast, businesses using the double-entry system record revenue when earned and expenses when incurred. Once you have accurate business records, your tax return accountant can easily prepare and lodge a tax return on your behalf.
Maintaining correct financial records can make your tax season stress-free. That’s why it is important to maintain each record of your business. If you find it difficult to manage everything on your own, you can get in touch with a Reliable Bookkeeping Services provider.