In business accounting, there are two main types of bookkeeping systems: single entry and double entry.
Each system has its own unique benefits and drawbacks, and as a business owner, it’s important to understand the difference between these two types of bookkeeping, so that you can make the best decision for your company.
That’s why we put together this guide, giving you an accessible overview of the main differences between single and double entry bookkeeping.
So – What is the Difference Between Single Entry and Double Entry Bookkeeping?
The main difference between single and double entry bookkeeping is that, within single entry bookkeeping services, business transactions are only recorded once. With double entry bookkeeping, each transaction is recorded twice: once as a debit and once as a credit.
This may sound like a small difference, but it actually has a big impact on the way businesses keep track of their finances.
Let’s take a closer look at each type of bookkeeping system, so that you can see the benefits and drawbacks of each in action.
Single Entry Bookkeeping Systems
Single entry bookkeeping is the simplest form of bookkeeping. In this system, each transaction is recorded only once.
This means that there is only one “side” to each ledger entry. For example, if you were to record a purchase made with cash, you would simply note the amount of cash spent in the ledger.
Single entry bookkeeping is best suited for small businesses, or businesses with very simple financial transactions. This system can be used by businesses of any size, but it becomes more difficult to manage as the number of transactions increase.
Advantages of a Single Entry System
Some key advantages of a single entry bookkeeping system include:
- It’s a simple, straightforward way to record transactions
- Perfect for small businesses just starting out
- Easy to learn so you can get started right away.
Disadvantages of a Single Entry System
Some potential disadvantages of a single entry bookkeeping system include:
- It can be prone to more error than a double entry system
- It provides limited ability to generate reports and analyse data
- It can still be time consuming without a dedicated accountant.
Double Entry Bookkeeping Systems
In a double entry accounting system, you record your financial statements in at least two accounts for your sales and expenses.
The most common double entry system is the accrual basis accounting, which recognizes revenue when it’s earned and expenses when they’re incurred.
Double entry systems are great for businesses of any size, but they’re especially helpful for businesses with more complex financial transactions. This is because a double entry system provides more information about each transaction than a single entry system.
Advantages of a Double Entry System
Some key advantages of a double entry bookkeeping system include:
- Increased accuracy and accountability
- Easier to prepare for end-of-year tax purposes
- Greater transparency and oversight.
Disadvantages of a Double Entry System
Some potential disadvantages of using a double entry bookkeeping system include:
- It is complex by nature, and so more time consuming
- Expert knowledge is usually required
- Can be costly to handle in house.
Which Bookkeeping System Should You Use?
The answer to this question depends on your business. If you’re a small business with a limited number of transactions, single entry bookkeeping may be sufficient. However, if you’re a larger business with more complex transactions, you may find that a double entry bookkeeping system is a better fit.
These days, cloud bookkeeping software like Xero, QuickBooks and Freeagent make double-entry systems much simpler to implement and so we’d recommend using one of these to get the benefits of double entry with some of the simplicity of single entry bookkeeping.
If you’re not sure which type of bookkeeping system is right for your business, it’s always best to speak to an accountant or financial advisor who can offer expert advice.
Even better, enlist a dedicated accountant to handle your bookkeeping from the start – that way, you can be sure that your finances are in good hands, and you can focus on running your business.
Key Differences To Remember:
- With single entry bookkeeping, it’s easier to make mistakes. Since each transaction is only recorded once, it’s easy to forget to include something, or to record something incorrectly.
- The double entry method is more accurate. Since each transaction is recorded twice, it’s less likely that anything will be missed or recorded incorrectly, this is a big plus.
- Single entry bookkeeping is less time-consuming. Since you only have to record each transaction once, it takes less time to keep your books up-to-date.
Should I Handle My Bookkeeping Systems In-House?
Single entry bookkeeping systems are often used by businesses with very few transactions, or by individuals. If you have a limited number of transactions, and you feel comfortable handling your finances, single entry bookkeeping may be a good option for you.
You can find software programmes that will help you keep track of your finances, and there are many online resources that can offer guidance on how to set up and maintain a single entry bookkeeping system.
However, if you’re not 100% comfortable handling your finances, or if you feel like you don’t have the time to keep on top of things, it’s best to outsource your bookkeeping to a chartered accountant.
Outsourcing your bookkeeping can be a great relief, especially if you’re not sure where to start or if you simply don’t have the time to keep on top of things. When you outsource your bookkeeping, you can be sure that your finances are in good hands, and you can focus on running your business.
Single and Double Entry Bookkeeping Systems FAQs
Who makes use of a single-entry bookkeeping system?
A single-entry bookkeeping system is often used by small businesses and organisations. This type of system can be adapted to the specific needs of the organisation, making it a popular choice for those who want a tailored solution.
What are the benefits of double entry bookkeeping?
The main benefit of double entry bookkeeping is that it provides a more accurate picture of your finances. This system records business transactions in two accounts, which helps to avoid errors and discrepancies and gives you a clear view of your financial position.
Double entry bookkeeping can also be easier to manage, as it provides a clear record of all financial activity.
What is the main difference between single and double entry bookkeeping?
The main difference between the two generally accepted accounting principles is that single entry bookkeeping only records transactions in one account, while double entry bookkeeping records them in two.
This means that double entry bookkeeping provides a more accurate picture of your finances, however it can also be more difficult to manage.
Looking For a Dedicated Business Accountant To Manage Your Accounting System?
At Raw Accounting, we understand that every business is different. That’s why we offer a range of accounting services, including double entry bookkeeping services.
We can work with you to tailor a solution that meets your specific needs and lets you do what you do best, while we do what we do best.
Contact us today to find out more about how we can help.
