Understanding bookkeeping is never easy. It is a tough, tedious, complicated and lengthy job. To add more to the plate, there are different types of bookkeeping systems as well. If you live in or around Arlington and don’t know about various types of bookkeeping then read on.
Maintaining company’s financial transactions in a log book is sensitive job, but necessary nevertheless. There’s not a soul in this world who will advise you against bookkeeping. It is important and required by law. Having a trusted bookkeeper or hiring a reputable bookkeeping service comes with a number of advantages. One of them being on-time submission of documents to the government, come end of financial year. Though many know about it, there are still many who are unaware of different types of bookkeeping systems. Each system has its own set of advantages and disadvantages. It’s important to know the differences between them, to be able to select the one that suits your company needs most.
Bookkeeping generally deals with daily recording of business assets, liabilities, income and expenses in books, journals and ledgers chronologically. As mentioned before these services can be acquired through hiring full-time or outsourcing bookkeeping jobs. There are two common types of bookkeeping systems and they are:
Single Entry Bookkeeping System
In single entry booking system, maintenance of financial information relies on one sided accounting entry. Very similar to the way a checkbook register is maintained, with additional columns of income and expenses to various income and expense accounts. Separate accounts are recorded for petty cash, accounts payable receivable, travel expenses and other relevant transactions.
It is perfect for companies whose volume of activity is low. Hence, single entry bookkeeping is considered best for small businesses. Other advantages of this system is that they are usually less expensive to implement and less time consuming since there’s no requirement of including equal debits and credits to the balance sheet and income statement accounts.
Disadvantages of single entry bookkeeping system include no recording of detailed financial information. Locating a mistake or error can be difficult in this system and are sometimes only possible through bank statement reconciliation. There’s no link between balance sheet and income.
Double Entry Bookkeeping System
A boon for large businesses, this system is usually meant for those companies who have numerous assets, thousands of transactions and various external capital suppliers. It requires recording of every transaction at least on two different ledgers, one being a debit account and the other a credit account. Since each and every entry in debit column is equal and opposite of the entry duly made in credit column. This means that the sum of all debits must be always equal to the sum of all credits.
This system is advantageous when it comes to finding mistakes and errors. Financial statements can be prepared directly from the accounts. Double entry bookkeeping makes it easier for bookkeepers to calculate profit and loss statements accurately. Assets and liabilities can be included which was not the case in single entry bookkeeping system.
The disadvantage of double entry bookkeeping system is that it is more time-consuming since each entry is made twice. It is also harder to understand. But these disadvantages hardly count if you hire a reputed and qualified bookkeeper Services offered by various bookkeeping companies include consultation, payroll, AR and AP Tracking and cash-flow management among others.
If bookkeeping isn’t your specialty then you shouldn’t dwell on it. Rather, you should focus on your products, services and customers and outsource your bookkeeping miseries.