Starting a business today can be challenging because of the processes, legalities, and competition that you have to face. Aside from thinking of a ‘million-dollar’ business concept and putting it into a strategic outline, you must also decide on how to handle the finances efficiently, most specifically the phase your bookkeeping shall take.
There are two types of bookkeeping phases that you can choose from: single-entry bookkeeping and double-entry bookkeeping. These two processes are different in nature and they have advantages and disadvantages over each other.
Single-entry Bookkeeping
Single-entry bookkeeping is an accounting process built for small businesses or those that are still in the start-up phase. This is also good for businesses with low volume of activity and methods. Single-entry bookkeeping is somehow similar to keeping your own personal checkbook wherein you record different transactions, like cash and taxable income.
Like its namesake, single-entry bookkeeping is made by putting only one entry for each transaction that your business had. Basically, you can put two columns in the ledger: one pertaining to revenue and another denoting expenses.
If you are new to the business industry, single-entry bookkeeping is a good accounting practice that you can start with. Here, you do not need to hire an accountant to accomplish the financial recording. If you really want to automate the accounting process, single-entry bookkeeping software are available online.
Despite the convenience of single-entry bookkeeping, you cannot use it to track other accounts like assets and liabilities. Accounts payable and accounts receivable cannot be recorded in single-entry bookkeeping as well.
Double-entry Bookkeeping
Double-entry bookkeeping is a dynamic accounting process that is widely used today. In this accounting process, each account has two columns and each transaction is located in two accounts. For every transaction, two entries can be made: debit and credit.
A fine example is when a company wants to pay a creditor or a lender. The cash account reduced to the amount that the company owes to the creditor is called a debit. The double-entry will now reduce the amount owed by the business to the creditor. This is known as the credit.
One of the advantages of double-entry bookkeeping is the fact that its complex structure can be used for large organizations. As your business grows, double-entry bookkeeping can help you ‘keep tabs’ on everything in the company. You can oversee a detailed profits and loss statement, which can help you make better financial decisions in the future. Errors in accounting can also be detected easily in double-entry bookkeeping, as well as frauds that can cause your business to lose financial standing in the long run.
There is another important thing that you have to remember in double-entry bookkeeping. While it is dynamic and useful for a growing company, everyone in your organization should work together to ensure that the accounting process is accurate. Any type of financial error is detrimental to the company and it will consume time to rectify the mistake.
The best for your business
Most online bookkeeping applications today are tailor-made according to your business needs and strategies. Selecting the type of bookkeeping process is a question of dynamics and forecast. If you are planning to retain your small business without expansions, go for single-entry. If you have seen the progress in your endeavor and you want to play it big, the double-entry process is an optimum choice.