Bookkeeping is an integral part of a business’s accounting system. It does everything from helping you with the budgeting and payroll services to preparing for tax returns. It also keeps the business organised, thereby keeping the finance in check. But which bookkeeping type does your business require?
Demonstrating the sort of bookkeeping for your enterprise is a challenge. However, given the two major types, you can select one that suits your business objectives. Let’s present the brief on the two major types of bookkeeping and outline which type your business needs.
Outlining the Types of Accounting Systems
In general, two types of bookkeeping systems are there. While one is the single entry, the other is the double-entry system. In the single-entry system, a small business will record each transaction as the line item in the ledger.
On the other hand, the double-entry systems would require each transaction to get recorded as both credit and debit in individual accounts. The latter also ensures the book balance of the company.
An Introduction to Single Entry System
Talking about the single-entry system, it only records the date, value of transactions, description, and whether it is the expense or income. After recording these parameters, the system then records the balance. The whole process gets performed for each company transaction. Based on the nature of your business, some might include tax amounts.
Let’s take the example of understanding it in a more comprehensive way. Suppose you run your small business of manufacturing shoe orthotics. And one of your customers has already given you the payment for the personalised orthotics. So, suppose you keep a computer program (let’s say the excel spread sheet) to keep track of each transaction! Then, you can simply log in and record the entry.
Now, when it’s about bookkeeping, balance becomes an integral part. Now, what’s the balance? Well, it’s the amount of money you have with you. Each entry gets catalogued, and the balance will adjust downwards or upwards depending on whether the transaction is an expense or income. If you have the balance information readily available, it benefits small businesses.
Who Can Use This System?
Multiple small businesses make the right use of a single-entry system that’s significantly for convenience and ease. Though the single-entry system can record only bare essentials, the following types of companies can use this system:
- Have few or no employees: That means the company requires a more detailed bookkeeping system)
- Use cash-based accounting rather than accrual accounting
- The organisation has only some financial transactions
- The firm doesn’t sell on instalment plans or credits
- Have some physical assets such as equipment, vehicles, and buildings
In general, single-entry bookkeeping can assist low-tier businesses with payroll services, etc.
Why Is the Single-Entry System Solely for Small Companies?
Given below are the reasons why the single-entry system is for small companies only:
- Tax Problems
This type of bookkeeping system might help in general with accounting and bookkeeping services Brisbane. However, it’s not acceptable to the tax authorities because of the incomplete nature of recorded data.
- Unable to Plan the Strategy
Without accurate bookkeeping (like the one offered by the Double Entry system); management would not be able to assess financial decisions. That may affect revenue for organisations and their ability to continue their operation.
Criminal activities are unlikely to get detected (that’s mainly because assets don’t get tracked).
Mistakes happen only because systems do not require self-balance. Meaning it might take longer to find the recording of any transaction, while some stay discovered.
The business size and the expense and income amount that it incurs would help in determining whether the single-entry system is a well-fit or something comprehensive detailed is mandatory.
An Introduction to Double Entry System
Double-entry bookkeeping Brisbane happens to be the accounting system where each transaction gets recorded in the two accounts – a debit and a credit account. Suppose the business takes a loan of $5000, assets get credited $5000 & liability gets debited $5000. So, the $5000 is both the increase in cash and the outstanding debt.
Who Should Use Double Entry System?
Public companies require using this kind of bookkeeping system. Besides, this type of bookkeeping system can also get used by small businesses having over a single employee. Organisations that are planning to apply for loans can also use this system. In a nutshell, companies that require a more accurate & complete system to track their financial situation must implement a double entry system.
Tips to Implement Double-Entry System
The double-entry system gets performed by using accounting software. Needless to say, the software lets the business build custom accounts, such as the “technology expense” account for recording the purchases of computers, cell phones, printers, etc. You may even connect the business bank account to simplify the recording of transactions.
The accounting software also generates reports that reduce the stress during the tax time & year ends. If you think it’s time to outsource your accounting jobs, you can hire a bookkeeping Brisbane professional.
While considering which type of bookkeeping entry system for your business, you must always consider one thing. The single-entry system can suit small organisations that try to emerge and get off the ground. However, as the company grows, it might likely need a double-entry bookkeeping system!
That’s the time when the enterprise would benefit from outsourcing the bookkeeping jobs to a professional. And it will also accurately assess the few other types of double-entry software systems. The double entry system can offer complete records & allows for the creation of the proper financial statements.
Though it might reduce the stress of business owners and let them concentrate on other business matters, it might be costly. But without much argument, the pros always outweigh the cons. And due to the efficacy, the double-entry system is more often quintessential for public businesses.
To sum up, the selection between the double and single-entry systems depends on the type of your business. Irrespective of the method you implement, remember to consult a professional to refrain from making errors that adversely affect your business. Ensure that the service provider also offers additional services like tax filing, payroll services, etc.