Any business needs to keep track of their finances, and bookkeeping is how it is done. Bookkeeping allows business owners to organize assets, revenue, expenses, and other monetary matters. It is also an effective way to find errors and other losses. Two common ways exist in order to do these duties that are quite different. These are double entry bookkeeping and single entry bookkeeping.

When using the double entry method of bookkeeping, two or more financial accounts are affected simultaneously by the same transaction. As the double entry bookkeeping method has evolved, it has become mainly a series of credits and debits. All of the credits related to one account are added together as are the debits from another account. A comparison is made of the two sums. If the negative sum equals the positive sum, then the books are balanced. Because two figures are compared, it helps to discover errors and discrepancies.

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 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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