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With good bookkeeping, you are aware of your company’s financial situation, you easily fulfill your tax obligations and you stay within compliance. So the question for you is which method of bookkeeping do you use?
Single and double entry bookkeeping systems are the two most widely used bookkeeping systems. It is advisable to utilize these two methods because they are an industry standard.
At the core of it, single entry keeps track of what went in and out of your business account. Single entry maintains the accounts of debtors and creditors and the cash book. Through single entry, each financial transaction is recorded in a log book.
As you can guess from the name, double entry requires two account entries for each transaction. It serves the purposes of eliminating any accounting and bookkeeping errors. Double entry also offers a more complex bookkeeping system, allowing a business to keep track of all its accounts, like personal, real and nominal accounts.
The above are just major differences between the single and double entry system.
So which one do you pick?
The general rule is that small businesses utilize single entry, while growing companies use double entry. Single entry works for small businesses because they mainly deal in financial transactions and aren’t likely to make a mistake when accounting them. Double entry works for growing companies because it allows for management of multiple accounts, which suits a company’s complex financial framework.
A bookkeeping system can be simple or complex as per the business requirement. Even though double entry may seem complex, there are many accounting tools that can simplify the process.
You pick a bookkeeping system that fits your business. If your business is a small one, then the single entry bookkeeping system is perfect. However, if your business is growing swiftly, then you want a robust bookkeeping system and double entry would be right.