If you are here, then you have decided to take on accounting. Lucky for you, it is the real deal, but without the hassle of double entry bookkeeping and the need to break one’s piggy bank.
Take a look at why single entry bookkeeping should be considered, especially if you are a small business owner. It’ll lead you to clean transaction tracking, which will eventually lead to success.
What is single entry accounting?
A single entry is when every transaction (taxable income, tax-deductible expenses, cash, etc.) is recorded with a single entry to the accounting records. There is only one entry for each transaction. It can be either negative or positive. In addition, if it is a two-column ledger, the single entry is either recorded in the income or expense account. There should be a column for the revenue and the expense.
However, a double entry system requires transactions to be recorded into two or more ledgers, into debits and credits. These two entries must result in a balance.
This type of single entry is used when companies are new and when their business transactions are low. It is also quite beneficial for small or growing businesses because you do not need to buy or use bookkeeping software. You can simply record them in a journal like a cash book, which indicates the payment and receipts of your cash transactions.
You’ll generally record:
- Transaction date,
- transaction description,
- transaction value,
What is the difference between a single entry and a double entry?
If you’ve recently opened a business or own a small business, accounting has to be thought of dearly. If you’re reading the article, then you know there are two types of accounting entries. There is the single entry and the double entry.
And of course, if one spends and receives money, then that process should be recorded. For any business owner, the method to be chosen should be the one that is best suited for the company’s and the owner’s needs. A company survives only if the right accounting is applied. Therefore, it is important to understand the difference between the two entries.
1. Single entry
As previously mentioned, the single entry is better if the business is small and transactions or activities are low. Cash and taxable income are used in this type of entry.
As its name states, in a single entry, an entry is made for each transaction. This method is concerned with one column and the entries recorded are either a positive or a negative amount. As it records cash, tax-deductible expenses, and taxable income, you can’t use it for inventory, accounts receivable, and accounts payable. It may calculate net income as well, but can be used to produce a balance sheet or record the asset and liability accounts.
2. Double entry
For every transaction, this method records entries in at least 2 accounts, known as debit or credit. Do not be fooled by the ‘double’ because the amounts of debits must correspond, match the amount of credit. This results in error-free transactions.
It is calculated using the formula below:
Assets = Liabilities + Owner’s equity
Both sides of this equation must be equal and balanced out, just like the term ‘balancing the books.’ An example will be explained below.
Advantages of the single entry bookkeeping system
First off, this system is very easy to apply and is pocketbook-friendly. It is advantageous because it is:
You do not need to have extensive knowledge in accounting to use this form of bookkeeping. It is quite easy to maintain and understand. Plus, there are no principles to follow for the recording of financial transactions, which is perfect for small companies and keeping their bookkeeping in check.
The single entry system is cost-effective because you do not need to hire accounting professionals to record your financial transactions. And, since your transactions are fairly low, you won’t be stuck under a pile of books.
3. Profit is easily calculable
Because the single entry system is based on the income statement, it simplifies searching for and tracking the profit and loss of your company. Profit can simply be calculated using the single entry system.
Though single entry bookkeeping has many advantages, double entry is still widely used by firms.
You buy office equipment and the total of that is $1,000 as well. It’ll look like this:
If you add them up, you’ll get a total of $2,200 because your credit is the same as your debit. It is that simple.
You can also use the table below for a cash book:
You’ll include the date of the transaction recorded, a description of whether it is an income or outcome, and the bank balance column.
In this table, your income and expenses will need to match what is found on your bank statements.
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