Explanation on the Types of Bookkeeping System

Bookkeeping is the regular recording of financial transactions and information pertaining to a company’s business. It is the systematic recording of a company’s financial transactions. It ensures that financial transaction records are up to date, correct, and complete.

There are mainly two types of Bookkeeping system: 

• Single entry Bookkeeping System
• Double Entry Bookkeeping System

Single-entry Bookkeeping System 

The single-entry system, which is commonly used in small businesses with few transactions, is a very informal type of system. Cash disbursements, sales, purchases, and cash receipts on accounts receivable will all be recorded by the system. Anything else, such as equipment investments or stocks, will be recorded only in the program’s notes section.

When a transaction is recorded, the basic single-entry system would only be recorded into one account, hence the name. While this is very simple for those who are new to bookkeeping, it can cause problems when it comes time to balance accounts or create financial statements.

Double Entry Bookkeeping System 

A double-entry system is a far more advanced form of bookkeeping system used by the majority of businesses, bookkeepers, and accountants with their own firms. A double-entry system includes fields for debits and credits so that any transaction recorded on one statement is also recorded on the corresponding account. There are fields for everything in these system, from basic transactions like cash receipts and sales to more complex ones like the purchase of stock or a building. It also includes tools for creating the most detailed financial statements. This will assist any company in obtaining a fair valuation, filing taxes, or obtaining funding for increased cash flow.

Methods of Bookkeeping System

Computerized Bookkeeping System

Because bookkeeping system are frequently difficult for the average bookkeeper to understand and use, the market has produced hundreds of computerised bookkeeping system. These structures employ single-entry or double-entry methods, making it simple for you to enter transactions. Bookkeeping software is available for both small and large businesses. With simple interfaces, small businesses can easily keep track of all accounts and transactions. Customized services are unnecessary because a basic accounting software system suffices. Large businesses will almost certainly require the services of a bookkeeper, but computerised software can help everyone stay on the same page. They will also most likely require a customised system that is tailored to their specific requirements, as no two businesses are the same.

Virtual Bookkeeping System

A virtual bookkeeper is essentially an online agent who manages your books. Virtual bookkeeping is popular among people who consider both single-entry and double-entry accounting system to be complex and difficult to manage. Because of efficient cost savings, a virtual bookkeeper is considered a great alternative to an in-house bookkeeper or accountant; they cost a fraction of what an on-site employee would cost a small business, but they’re just as effective as the former. Virtual bookkeepers can handle any accounting-related task you have in mind, but they are most frequently used for invoices, payroll ledgers, and expense receipts. They will use the single or double-entry bookkeeping system for you.

Manual bookkeeping system

Manual bookkeeping typically entails keeping track of receivable and payable accounts by hand in non-digital (without the use of a computer system) journals and ledgers (such as Sales Book, Cash Book, and Purchase Book). To that end, the bookkeeper will need to keep certain physical documents in order to keep track of the company’s financial affairs, such as quotations, shipping notices, purchase orders, credit notes, sales invoices, remittance advice, financial records, paying in slips, cheque books, supplier purchases and expenses, and bank account statements. This is most common in small businesses and enterprises with few transactions, where the owner of the business performs the functions of the bookkeeper himself.

Conclusion

The process of recording your company’s financial transactions into organised accounts on a daily basis is known as bookkeeping Previously, the only way to record and maintain records was by hand. Paper-based bookkeeping is now a thing of the past. Keeping track of all business transactions is now easier than ever thanks to computerised system. When a credit is reported, the respective debit can be recorded as well. The only disadvantage is the time taken to get technical training on the system, however, once you learn, you can be much more efficient.