If you’re like most business owners, you probably don’t have time to keep your books in order. That’s where single-entry bookkeeping comes in! With this method, you can easily track your expenses and income, and keep your business finances in check. We will discuss the basics of single-entry bookkeeping and how it can benefit your business.
Table of contents:
- Difference between single entry and double entry
- What is single entry bookkeeping
- What is double entry bookkeeping
- 5 Easy double entry accounting software for small business
- Tips for using single entry bookkeeping in your business
- Tips for using double entry bookkeeping in your company
Single Entry vs Double Entry Bookkeeping
The main difference between single and double entry system is the way transactions are recorded.
With double-entry bookkeeping, each transaction is recorded in two accounts, which ensures the accuracy of financial statements.
- With single entry bookkeeping, only one account is used to record transactions, which makes financial statements less accurate. However, single entry bookkeeping is simpler and easier to use, making it a popular choice for small businesses.
What is single-entry bookkeeping?
Single-entry bookkeeping is a method of accounting in which all transactions are recorded in a single ledger. This type of bookkeeping is typically used by small businesses and sole proprietorships. Also, single-entry is easier to learn and use than double entry bookkeeping.
How it works?
- Keep a ledger for each type of transaction – a ledger for sales, purchases and expenses.
- Enter each transaction into the appropriate ledger.
- At the end of the period, total each ledger and transfer the totals to a master ledger.
The first step is to do your homework and understand what offshore accounting entails. Once you have a good understanding of the basics, you can start to narrow down your search for a qualified professional.
For example, let’s say you own a small business and make a sale.
=> You would record the sale in your sales ledger.
=> Then, let’s say you use some of that money to buy supplies for your business. You would record the purchase in your purchases ledger.
=> Finally, let’s say you spend some of the money on advertising. You would record the expense in your expenses ledger.
At the end of the period, you would transfer the totals to a master ledger which would show that you have made a sale, made a purchase, and incurred an expense.
Types of single entry?
There are two types of single-entry bookkeeping:
Cash is when transactions are recorded when the cash changes hands.
Accrual is when transactions are recorded when the obligation is created, even if the cash balance has not yet changed hands.
Benefits of single entry
- Single entry bookkeeping is a simpler, more basic form of accounting that is easy to learn and use
- This type of bookkeeping is perfect for small businesses and sole proprietorships
- Transactions are recorded in a single ledger, making it easy to track your income and expenses
Disadvantage of single-entry
- The main disadvantage of single-entry bookkeeping is that it is less accurate than double entry bookkeeping. This is because there is only one record of each transaction, so it is easy to make mistakes
- Single-entry bookkeeping can also be more time-consuming than double entry system, as you have to keep track of multiple ledgers
What is double entry bookkeeping?
Double-entry bookkeeping is a system of accounting that ensures the accuracy of financial records by requiring every transaction to be recorded in at least two accounts and works on the basics of accounting equations. This system helps businesses and individuals track where their money is going, as well as keep track of their assets and liabilities.
Also, under the double-entry system, each transaction must have corresponding debits and credits. This system provides a more complete picture of a business’s financial health than single bookkeeping.
How does it work?
- First, you must identify the accounts that will be affected by the transaction. For each transaction, there must be at least one debit and one credit.
- Next, you have to determine the amount of the transaction.
- Finally, you have to enter the transaction into your accounting software. Most accounting software programs will have a journal entry feature that allows you to enter the date, account names, and debit and credit amounts for each transaction.
Suppose that a business buys a new computer for £1,000. The computer will be recorded as an asset in the business’s accounting records.
The transaction would be recorded as follows:
=> Debit: Asset account
=> Credit: Cash account
For the debit, we would enter an asset account because the business has acquired a new asset (the computer). For the credit, we would enter the cash account because the business has paid for the computer with cash or with a card.
Types of entries for double bookkeeping
There are three types of entries for double bookkeeping:
1. Journal Entries:
A journal entry is a record of the financial transactions that take place within a business. This includes purchases, sales, payments, and receipts.
2. General Ledger Entries:
The general ledger is a record of all the financial transactions that take place within a business. This includes journal entries, as well as other entries such as payroll and invoices. Ledger entries are used to keep track of a business’s financial activities.
3. Trial Balance:
A trial balance is a list of all the accounts in a business, as well as their corresponding debits and credits. This report is used to ensure that the total of all the debits equals the total of all the credits.
What are the different types of accounts?
There are three types of chart of accounts in double entry bookkeeping: assets, liabilities, and equity.
=> An asset account is a record of all the property and possessions that a business owns. This includes cash, equipment, and inventory.
=> A liability account is a record of all the money that a business owes to others. This includes loans, accounts payable, and taxes payable.
=> Equity is the difference between a business’s assets and liabilities. Equity is divided into two categories: paid-in capital and retained earnings. Paid-in capital represents the money that the owners have invested in the business. Retained earnings are the net income (profit) that the business has earned over time.
What is a balance sheet?
The balance sheet is a financial statement that provides a snapshot of a business’s assets, liabilities, and equity at a given point in time. This report is used to assess the financial health of a business.
The balance sheet equation is as follows:
Assets = Liabilities + Equity
The income statement is a financial statement that shows how much revenue a business has earned and how much expenses it has incurred over some time. This report is used to assess the profitability of a business.
The income statement equation is as follows:
Revenue – Expenses = Net Income (Profit)
The cash flow statement is a financial statement that shows how much cash a business has generated and used over a while. This report is used to assess the financial health of a business.
The cash flow statement equation is as follows:
Cash Inflow – Cash Outflow = Net Cash Flow
Benefits of double entry
- More accurate financial records
- Easier to track where money is going
- Keep track of assets and liabilities
- Feel more in control of your finances
Disadvantages of double entry bookkeeping
- Takes more time to record transactions
- Requires a basic understanding of accounting
- Can be overwhelming for small businesses
Double-entry accounting software for small businesses
There are many different types of accounting software on the market, but the following five are some of the best for small businesses.
QuickBooks is one of the most popular double entry accounting system available, and it’s a great option for small businesses. It’s easy to use and has all the features you need to keep your books in order.
If you’re looking for a program that’s specifically designed for small businesses, FreshBooks is a great option. It’s easy to use and has a lot of great features, including invoicing, time tracking, and expense tracking.
Wave Accounting is a free double entry bookkeeping system and accounting software program that’s perfect for small businesses. It has all the basic features you need to keep your books in order, and it’s very easy to use.
Xero is another great option for small businesses. It has a wide range of features, including invoicing, expense tracking, and budgeting tools.
Sage One Accounts is a cloud-based accounting software program that’s perfect for small businesses. It’s easy to use and has all the features you need to keep your books in order.
Tips for using SE bookkeeping in your business
- Start by creating a list of all the accounts in your business. This should include assets liabilities equity accounts.
- Next, create journal entries for all of your financial transactions. This includes purchases, sales, payments, and receipts.
- Use the general ledger to keep track of all of your financial activities. This includes journal entries, as well as other entries such as payroll and invoices.
- Use the trial balance to ensure that the total of all the debits equals the total of all the credits.
Tips for using DE bookkeeping in your business
- Make sure you understand the basics of double-entry bookkeeping before you start using it.
- Keep your books in order by recording all transactions in a journal and posting them to the appropriate accounts.
- Reconcile your accounts regularly to ensure accuracy.
- Use software or online tools to help you keep track of your finances.
- Stay organized and keep track of your expenses and income so you can make sound financial decisions for your business.
Single entry is a simpler method of tracking your finances, and it can be more than adequate for small businesses and sole proprietors. Using DE bookkeeping is more complex, but it offers greater accuracy and can be helpful for businesses with multiple streams of income or expenses.
Ultimately, the choice between single and double entry bookkeeping comes down to how comfortable you feel tracking your finances and whether you need the extra level of detail that double entry bookkeeping provides. If you’re just starting in business, we recommend trying single entry first to see if it meets your needs; you can always switch over to double entry later on if necessary.