Types of Bookkeeping

The bookkeeping systems are of two types. Businesses can use any type of bookkeeping system according to their need. Sometimes combination of both types of bookkeeping systems is used by companies.

1. Single Entry Bookkeeping

Single-entry bookkeeping systems are defined as a basic type of system that is used to record daily or weekly transactions and generate a report of cash flow. For every single financial transaction, one entry is recorded by the bookkeeper. In a single-entry bookkeeping system, only one side of the transaction is being maintained, consisting of sales, payments, purchases, and cash receipts. Single-entry bookkeeping systems are majorly used by small businesses and companies that have less number of financial transactions. In single-entry bookkeeping, the bank statements, cash sales journal, and cash disbursements journal are the documentation that is maintained.

Advantages:

• For maintaining single entry bookkeeping system, no professional education is required.
• It is simple as compared to double-entry bookkeeping.
• It is more cost-effective as compared to double-entry bookkeeping.
• Single entry bookkeeping is effective for small businesses.

2. Double Entry Bookkeeping

Double entry bookkeeping system is defined as a type of bookkeeping where for every single financial transaction two entries are recorded. Unlike single-enrty bookkeeping, double entry bookkeeping records credit entries. The transactions in double entry bookkeeping are recorded when either debt is incurred or revenue is earned. In double-entry bookkeeping, every financial entry affects two accounts, i.e., one is debited, and the other one is credited. The system of double entry bookkeeping is majorly adopted by all businesses and is considered efficient and accurate for maintaining financial transactions. For double-entry bookkeeping, the documents that are required include inventory, cash book, account payables, loans, payrolls, etc.

Advantages

• Double entry bookkeeping provides more accurate results and maintenance.
• By preparing the balance sheets and profit and loss accounts, we can know the financial status of the company.
• In double entry, bookkeeping errors can be checked easily.
• Frauds can be detected easily as both credit and debit accounts are reflected.