Book-keeping is extremely important for maintaining proper financial records of any business. In order to keep a record of the transactions, bookkeepers tend to use the single-entry or double-entry bookkeeping system. Phoenix accounting services provide professional help to small businesses in financial matters.
In order to pick the best system for your company, it is essential to be well aware of all the details of both systems and the difference between them.
- Single-Entry System
In this system, all the business’s financial transactions are maintained by only one entry in the accounting records. Usually, small-scale businesses opt for a single-entry accounting system or those with a lower turnover, and accounting is done based only on cash. It implies that the recording of revenue and expenditure is maintained when they are incurred, regardless of cash exchange.
After every single transaction, the details like date, description, and transaction value are recorded. It is also crucial to note if the transaction is an expense or income. It helps maintain financial records for the company by mentioning the gains and losses and their impact on the current balance. This data helps the owners of small businesses to make financial decisions and decide if it is the right time to invest in the business. It is valuable in preserving the finances of the company and maintaining stability.
This accounting system is easy to use and convenient for business owners. It is a cost-efficient option as it does not require costly software or a professional bookkeeper for its maintenance.
However, this system is more brutal in generating profit and loss statements. As a result, it becomes difficult to keep track of the assets and liabilities of the business.
- Double Entry System
This system facilitates tracking the inward and outward flow of money in the business and helps record all the transactions in at least two accounts. Hence, it is termed the “double-entry accounting system.” This method requires more effort and planning as it gives more detailed and accurate financial data, unlike the single-entry method.
Due to its complexity and comprehensive nature, a professional bookkeeper must maintain the accounts. The bookkeepers check the business and prepare data assessing the influx and efflux of the company. The data is highly beneficial to business owners because it facilitates decision-making by providing detailed information about the company’s status.
This system of accounting eliminates accounting mistakes and promotes transparency in financial records.