When starting a business, one of the first decisions you'll need to make is how you’re going to record your transactions. There are two methods of bookkeeping, single-entry and double-entry.
Single-Entry Bookkeeping
When using the single-entry system, you write one entry for each transaction, recorded as a debit or credit. This system reflects a personal checkbook, where you record the date, amount, and description of each transaction. It is easy to use and doesn't require a background or knowledge of bookkeeping. However, only very small businesses that make simple transactions should consider using this option.
Here is a very simple version of the single-entry system:
Numbers in parentheses signify credits while those without are debits. If preferred, you can split the amount into two columns, one for credits and one for debits. This is still considered single-entry bookkeeping because you are only recording the transaction once.
Double-Entry Bookkeeping
In the double-entry system, for every debit entry, there is a corresponding credit entry and vice versa. The total dollar amount of debits must always equal credits. This provides a layer of accuracy in your records. Using the accounting equation will help you keep your books balanced.
Assets = Liabilities + Equity
Here is an example of double-entry bookkeeping:
Source: flickr
Double-entry bookkeeping provides a sophisticated way to record your transactions and requires skill and expertise to accomplish — but don't let that deter you from using it. There are many benefits to using the double-entry system compared to the single-entry. You can use data from these entries to track accounts such as inventory, accounts payable, and accounts receivable. This will give you a good indication of the profitability of your business and can be used to prepare financial statements.
What Should My Business Use?
Typically, double-entry bookkeeping is better because it is more accurate and can be used to determine the financial position of your business. If your goal is to grow your business, it's better to start with the double-entry system so you can add different accounts to your books as you grow. However, you may need to hire or outsource a bookkeeper if you choose this method to ensure it's done correctly.
Need help? If you’re looking for a bookkeeper to ensure complete and accurate records, our team of expert bookkeepers would love to help you out. Give us a call at (360) 756- 5020 or contact us here.