Knowing about the types of bookkeeping systems and their applications is essential for business owners to be certain that they follow the most compatible system for their business says, Brian C Jensen. The kind of bookkeeping needs for small businesses is quite different from that of larger ones. Although the purpose of bookkeeping is the same, the size of the business and the complexity of the business operations influence the choice of single entry or double-entry bookkeeping systems, which are part of traditional bookkeeping.
The volume and type of financial transactions by businesses help determine which kind of bookkeeping will be suitable to support the business in maintaining the records of the transactions. Knowing which will be appropriate for the business will give confidence to business owners that they are doing the correct thing, believes Brian C Jensen.
Single entry system explained by Brian C Jensen
Businesses that have fewer and uncomplicated transactions can also use the single entry system of bookkeeping. It is the simplest form of the bookkeeping system. That records only cash sales and the business’s expenses incurred and paid for. Since the entries are limited only to the two types of transactions. This system does not suit businesses that operate on a slightly bigger scale. That entails many other financial transactions like accounts payable, accounts receivable, and many capital transactions.
However, the single-entry bookkeeping system makes it challenging. To trace expenses and revenues as the entries do not match transactions to respective accounts. The single-entry bookkeeping system covers three aspects –cash sales journals and cash disbursement journals together with bank statements. Revenues received are entered in the cash sales journal, and expenses are entered in the disbursement journal. Your journal entries should tally with the bank statements.
Double-entry system
Businesses that have complex transactions use the double-entry system of bookkeeping, confirms Brian C Jensen. Companies that generate revenue streams through accounts receivable inventory and receive merchandise on credit use the double-entry bookkeeping system. The system can even trace transactions, income, or expense to a corresponding account besides recording the transactions, income, or expense. For example, income received from customers is posted as income and can be traced back to the respective customer account. This aspect is beneficial during auditing or when you need to know the sources of income generation. Because there is a paper trail that helps to find the information quickly. The system uses debits and credits, which correspond to the decreases and increases to every account impacted by the transactions.
Manual bookkeeping is now a thing of the past as plenty of accounting software is now available. That every type and size of business can also use to perform the bookkeeping activities and maintain the complete accounting system. Digitization of bookkeeping has speeded up the processes tremendously. By eliminating most of the manual labor of making entries in ledgers and journals. And allows businesses to maintain updated and error-free financial records without any hassles. The accounting software can handle all types of complex transactions of bigger volumes.