Being a business owner, you probably know how important bookkeeping is for every business owner. Either you should have the basic knowledge to do it on your own or hire professional bookkeepers who can properly manage your book of finance.
Single-entry and Double-entry bookkeeping are the two categories of accounting methods. Choosing the right method is very important. For small businesses with a sole proprietorship, single-entry bookkeeping is easier to fulfill a company’s accounting needs.
Double-entry bookkeeping is advantageous in many ways. Most importantly, it increases accountability and allows you to prepare financial statements most efficiently.
If you have never used this method of accounting and even if you are not familiar with it, you can hire professional bookkeepers and accountants, or purchase desktop or cloud-based small business accounting software.
You can also outsource data entry to an experienced bookkeeping vendor, which will allow you to focus your time and resources on developing business strategies for increasing revenue and building customer relationships.
Not only for planning and budgeting, but maintaining financial records accurately is very important also for providing valid reports to banks, tax preparers, and investors.
About Double-Entry Bookkeeping
It is an accounting method of balancing business books. In Journal notes, for every credit entry, there are equal debit entries. This means the data registered under the company’s equity side is also recorded under its assets side.
The function of Double-Entry Bookkeeping
It records the financial transaction in a way that when financial reports and statements are generated the company’s assets are equal to both- its liabilities and the owner’s equity.
The Method
The double-entry method affects two separate accounts – Debit Entry (the assets side) & Credit Entry (the equity side). The method initially will be very confusing but once the figures are recorded in a proper way the account books will appear easy since the total of both- credit and debit entries- will be equal.
Most companies across the globe use this double-entry method of accounting but some people that are having cash-only transactions usually use the single-entry method.
It is a simple and easy method of accounting. Companies use this method to reconcile their chequebooks. Business books with this method are assessed like checking accounts.
Also Read: Top Tips to Trace the Best Tax Preparer
Duble-entry Bookkeeping Example
Let’s take an example of double-entry bookkeeping, you have paid out $1500 for a new laptop. Here, you will make two different entries- $1500 debit, increasing your income expense by & 1500 credit, to decrease your balance sheet account.
Moreover, if your company is borrowing money from a bank, your assets, as well as your liabilities, will increase by an equal amount. After registering entries in your journal, the total sum of your debt balance and credit balance should be equal. Double-entry checks the accuracy and helps you ensure that both parts of transactions are captured correctly.
Wrapping up
If you are a sole proprietor with no or only one employee and don’t have debts, don’t have inventories, and don’t need to maintain huge financial records to keep track of your accounts, single-entry bookkeeping would be sufficient for your needs.
But, if you own an exclusive complex business, the double-entry accounting method is highly recommendable. It gives a more complete view of your financial figures than that of the single-entry.
When tracking where your revenue is coming from and where the money is going, the double-entry can help you assemble the overall information into a financial statement that gives you insight into your business.
This financial statement can further help you make better decisions for your company. Not only this, but double-entry bookkeeping also lowers the risk of accounting errors, intensifies your financial transparency, and adds an extra layer of accountability to your business.
Almost all widely used accounting software offers a double-entry system. But, if you don’t have to or want to deal will the software, search out professional bookkeepers. Most professional service providers are today using this accounting method by default.
Being a business owner, you might be aware of bookkeeping services. It is an accrual accounting system like single-entry bookkeeping. A double-entry accounting system helps you create statements, maintain records accurately, and seize accounting issues.