Importance of Bookkeeping

Bookkeeping is an aspect of the accounting record-keeping process. It has two sections: a single-entry system and a double-entry system. Small single proprietorships and partnerships, for the most part, do not use a double entry bookkeeping method. The only transactions they need to keep track of are cash and credit card transactions. They will, however, be interested in learning about their company’s performance and financial situation at the end of the accounting period. As a result, the accountants face a variety of challenges. Most small businesses are focused on swiftly establishing a system to pay vendors and record revenue, and many are ignorant that they must pick between single entry and double entry bookkeeping. Let’s look at the distinctions between single entry and double entry systems and why they’re employed to record business transactions in this post.

Single Entry System

The single entry system is an accounting approach in which each accounting transaction is entered in the accounting records with only one entry. It is mostly used for income statement entries and is focused on the commercial enterprise’s results. When accounts are prepared from partial transactions, the term “preparation of accounts from incomplete records” refers to the problems that can arise.

Accounting Fundamentals of the Single Entry System

Single entry bookkeeping is similar to balancing a chequebook, and it is most likely to work for you if the company is small and straightforward, with little activity.

1.We  can maintain track of transactions such as cash, tax-deductible expenses, and taxable revenue when you use single-entry accounting.

2.A single entry system differs from a check register in that each transaction is logged with only one entry.

3.In one column, entries are entered as positive or negative values.

4.With single-entry bookkeeping, you can keep a two-column ledger, one for revenue and one for expenses.

5.As we know  each transaction is recorded on a single line, it is still referred to as single-entry accounting.

6.Small business owners with a small number of transactions use the single entry method, which is an imperfect accounting system.

7.In this accounting system, a business owner can only open and maintain personal accounts.

8.Auxiliary books are sometimes retained, and sometimes they aren’t. It is hard to produce a profit and loss account or a balance sheet to determine the business organization’s precise profit or loss or financial situation since the business owner does not open real and nominal accounts.

This type of bookkeeping should be avoided by large, complex enterprises. Inventory, payables, and receivables are among the accounts it does not track. Single-entry bookkeeping can be used to calculate net income but not to produce a balance sheet or to keep track of asset and liability accounts. Transactions are recorded as a single entry rather than debiting and crediting a succession of books as in double-entry bookkeeping.

Double Entry Bookkeeping System

Every firm transaction or event must be documented in at least two accounts, according to the double entry accounting system, often known as double entry bookkeeping. The accounting equation follows the same logic. Every debit must be matched by a credit of the same amount. To put it another way, each accounting transaction’s debits and credits must be equal and totaled.

Basics of the Double Entry Accounting System

Most businesses, especially small businesses, employ double-entry bookkeeping for their accounting purposes. In double-entry accounting, each account has two columns, and each transaction is split across two accounts. Each transaction contains two entries: a debit and a credit in one account.

Due to a two-fold effect, the system is complete, accurate, and compatible with Generally Accepted Accounting Principles (GAAP). Every transaction is meticulously recorded using a certain way. The method starts with preparing source papers, then moves on to the diary, ledger, and trial balance, and eventually to financial statement production.

There are less chances of fraud and embezzlement because this system produces a full-fledged recording of transactions. Errors are clearly identifiable. The accounts can also be reconciled due to their two-fold character. Tax laws also urge that transactions be recorded using a Double Entry System of accounting. However, when compared to a single-entry system, this procedure takes longer.

The following is the accounting equation that underpins the double-entry system:

Liabilities +Equity = Assets

The resources that a firm holds are referred to as assets. A company’s liabilities are the responsibilities it owes to another party. The amount owed to the business’s owners after all commitments and liabilities have been paid is referred to as equity.

Conclusion 

We conclude that , whether we utilize a single-entry or double-entry bookkeeping system (also known as single-entry or double-entry accounting), how we  handle the rest of our money is important. We can  limit our company’s growth and prevent ourselves from executing important accounting duties if we  choose single-entry bookkeeping instead of double-entry. However, this technique is simpler for small and medium-sized businesses than it is for huge corporations, which prefer double-entry bookkeeping.