Information On Business Bookkeeping Methods
Every business that hopes to stay organized and track the money entering and leaving the company needs to record its transactions. This is called bookkeeping and keeps track of assets, revenue, expenses, and other monetary components. There are two different methods used by which the books are balanced. These are known as double entry bookkeeping and single entry bookkeeping.
As transactions are recorded in the double entry bookkeeping method, two or more accounts are affected at the same time. These transactions are recorded as a series of credits and debits. When balancing the books, all of the credits are added together as well as all of the debits. The sum of the positive credits from one account are then compared to the sum of the negative debits from another. The books are considered balanced if they match. By recording the amount of a transaction twice, an error checking system is created.
Because each transaction has an equal and opposite effect on one account from another, positive and negative signs are assigned to credits and debits respectively. One account is increased at the same rate another is decreased. These records are kept in books called ledgers. Because double entry bookkeeping involves at least two accounts being affected by the same transaction, each account receives its own ledger. This constitutes a sort of financial proofreading process. As one credit or debit amount is recorded in one ledger, the opposite action of the same amount must be recorded in another. By entering the number twice, it is ensured that the books will balance when all of the figures are tallied.
As you can probably tell, double entry bookkeeping is not for the inexperienced. It takes training and skill. Those who operate small businesses that don't move as many numbers don't need something as complicated, though. The answer for them is single entry bookkeeping. As a matter of fact, owners of businesses this small can probably do the bookkeeping on their own. The name of the game is simplicity and will only work for companies this small. That's because there is a small enough amount of transactions that only the bare minimum needs to be recorded. This includes cash, accounts receivable, accounts payable, and taxes. Single entry bookkeeping provides a huge benefit for small business owners because it is not nearly as costly as double entry bookkeeping.
Most businesses are large enough that they utilize double entry bookkeeping. The smaller, less complicated businesses are the ones that are able to use single entry bookkeeping. Either type of bookkeeping is necessary for a business to remain successful.
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