Recording information for a business requires having a solid system in place. We know that keeping accurate records is important, and issuing reports is imperative, but what entry system will work best for your business?
The single entry system is an “informal” accounting/bookkeeping system in which a bookkeeper records each transaction only once as either revenue (deposit) or as an expense (check). Using this system, a bookkeeper generally records only the essentials, such as cash, accounts receivable, accounts payable and taxes paid, and includes a daily and monthly summary of cash receipts and disbursements. Because of the simplicity of this system’s nature, records of assets, inventory, expenses, and revenues may not be kept. Single-entry systems are usually inadequate except where businesses are especially simple and the volume of activity is low. An example of a single-entry bookkeeping system is a checkbook. The drawback of the single-entry system is that it does not provide a business with all the financial information needed to adequately report the financial affairs of a business.
Double Entry System
The double entry system is the standard and complete accounting system used by businesses because every transaction or event is recorded in at least two accounts. Recording a debit amount to one account and a credit amount to another results in equal credits for all accounts in the ledger. Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping is used to detect and reduce errors. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, a bookkeeper is able to catch and correct the error easier. This system is preferred among businesses with high-volume activity because of its thoroughness, and checks and balances.
What bookkeeping system do you prefer over the other? Do you implement both? Have you found any drawbacks to using one over the other? Leave your preference and reasons in the comments below- we would love to hear from you.