Single Vs. Double Entry Bookkeeping
Bookkeeping is a requirement for all businesses, whether your company is a new venture or well established with many employees. Even though the idea of getting your bookkeeping up and running can be overwhelming, it remains key to a successful business. One important question to answer is whether you want to set up single entry bookkeeping or double entry bookkeeping.
Ultimately the answer will be determined by your company’s bookkeeping needs. Whichever you choose, you want to make sure to keep your bookkeeping transparent and balanced.
What is Single Entry Bookkeeping?
With single entry bookkeeping, you make one entry per transaction similar to what is done in a personal checkbook. This is done with a two-column ledger, one column for income and the other for expenses. It is a single entry due to one line being used for each transaction.
Single entry bookkeeping is a record of basic things to keep track of for your business like cash, tax-deductible expenses, and taxable income. However, single entry cannot be used to develop a balance sheet or to track the asset and liability accounts.
What Account Types are used in Single Entry Bookkeeping?
- Income accounts represent all money received like interest income and revenue.
- Expense accounts show money that the company spends, including purchased goods for sale, payroll costs, rent, or advertising.
What is Double Entry Bookkeeping?
Double entry bookkeeping has two columns for each account and each transaction is located in two accounts. Two entries are made for each transaction placing a debit in one account and a credit in the second account.
All money must be accounted for so the total amount of the entries for each account must balance. Usually debits are noted on the left of the ledger with credits on the right when using double entry bookkeeping.
While keeping the books balanced, double entry bookkeeping shows a true financial picture of the company’s finances. That’s because this method relies on the use of the accounting equation Assets = Liabilities + Equity.
Companies must follow the accounting rules and regulations by generally accepted accounting principles (GAAP). These principles apply to public companies as well as to private companies, non-profits, and state and local governments.
What Account Types are used in Double Entry Bookkeeping?
- Asset accounts show money associated with what a business owns, such as the dollars in its checking account or the price paid for properties.
- Liability accounts are exactly as it sounds. These accounts show what the firm owes like credit cards, rent and other expenses.
- Income accounts represent all money received like interest income and revenue.
- Expense accounts show money that the company spends, including purchased goods for sale, payroll costs, rent, or advertising.
Which Bookkeeping Type will Work best for Your Company?
Overall, single entry bookkeeping works for a small business with limited transactions.
You can use single-entry bookkeeping to calculate net income, but it cannot be used to develop a balance sheet or track your asset and liability accounts. As stated, it is much like keeping a checkbook register for a personal account.
Most businesses end up using double entry bookkeeping for their accounts mainly because it affords you the flexibility to have an overall, big picture view of your business accounts. Double entry can track liabilities and assets, as well as allow you to keep watch on profits and losses. This enables you to produce accurate financial statements, which can be prepared directly from your bookkeeping.
Even though double entry bookkeeping doesn’t stop mistakes from happening, it does produce a system that flags errors and makes it much easier to trace before they can wreak havoc on your overall bookkeeping system.
Making the Best Choice for your Company
When you contact us at Slaton Financial Services regarding your business bookkeeping, we can help you make the best choice! We have an expert staff that can provide all of the answers to your questions and take on the work of your bookkeeping needs. When outsourcing bookkeeping, keeping it local is easy with Slaton.
We also are aware of any changes in state and federal tax guidelines that are important to your business. It is an added bonus serving you and your business’s bookkeeping needs knowing that we are helping one of our very own in the north Texas community to succeed!
Call Slaton Financial Services today and let us take on the responsibility of your bookkeeping so you can focus on doing what you care most about – growing your business.