A Guide To Business Bookkeeping Methods

Bookkeeping is the necessary practice of keeping records of a business’s transactions. It exists in order to organize assets, revenue, expenses, and other monetary elements as well as a way to detect errors and losses. There exist two common, yet different, methods every successful businesses uses in order to balance the books; 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.

Each transaction in double entry bookkeeping has the equal and opposite effect from one account to another. To keep things straight, a positive sign is given to credits and a negative sign is given to debits. One account will increase at the same rate the other decreases. As these transactions occur, they are recorded in books known as ledgers. Each account for the business maintains its own ledger. As a result of entries being recorded in two separate ledgers, a sort of automatic proofreading process is taking place. As credit is being recorded in one ledger, a debit of the same amount is recorded in another. Entering this same number twice ensures that when all figures are tallied, the books will be balanced.

As you can see by just scratching the surface, double entry bookkeeping requires skill and training. What, then, about rather small businesses that don’t produce adequate numbers to necessitate a team of experienced bookkeepers? Single entry bookkeeping is the solution for small business owners who can get by with recording transactions on their own. Bear in mind that single entry bookkeeping only works for businesses that experience low volumes of transactions because it records only the essential accounting information such as cash, accounts receivable, accounts payable, and taxes. Single entry bookkeeping is beneficial, though, because of how much cheaper it is to maintain.

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.

If you liked this, try : Bankstown MYOB Bookkeeping

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.