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By: Ronda PaynePublished On: September 24, 2019
Organizations today don’t risk hiring people with no bookkeeping background or experience. They understand that only professionals who have completed a bookkeeping or accounting program in Canada, or those who have had bookkeeping training can maintain financial records properly. To record these transactions, bookkeepers either use a single-entry system or a double-entry system.
A single entry system involves making a single entry for all business transactions to the accounting records, while a double-entry system means every transaction amounts must be recorded in two accounts. Let’s learn more in detail about these two systems.
Single Entry System
Single entry accounting is a form of bookkeeping where every financial transaction is recorded with only a single entry in the accounting records. Bookkeepers use this system when the businesses they are working for are small-scale operations with low revenue or turnover and use only cash basis accounting. It means that revenues and expenses are recorded when they are incurred, irrespective of when cash is exchanged.
For every transaction the company does, they record the date, description, and value of the transaction. They also note whether it’s an income or expense and the present balance. Depending on whether the transaction is a gain or a loss, the balance will increase or decrease. It helps small business owners to have this information handy because they can tell straight away whether they have the balance or capital to make a purchase or invest in something they need for their business; whether they can even afford the expense.
The advantages are obvious. It’s simple because it’s easy to execute; it’s convenient because business owners know what their balance is at all times; and it is economical, as businesses don’t need to invest in any expensive software or hire a professional bookkeeper.
However, the disadvantages are plenty. Because of the nature of record-keeping, it’s hard to generate a profit and loss statement or an income or cash statement; it’s challenging to track assets and liabilities; errors; there’s potential for fraudulent activities. It also becomes difficult for owners to understand the financial health of the business. This keeps them from strategizing and planning for the future. It also causes tax issues because due to the incomplete data, it does not meet the Generally Accepted Accounting Principles (GAAP) standards.
Double Entry System
A double-entry system requires more work and planning. It tracks the inflow and outflow of your money and records every transaction in a minimum of two accounts. Hence the term “double-entry”. This method provides owners with a detailed, comprehensive view of their financials, unlike single-entry bookkeeping.
Since this method is more complex, businesses need a professional bookkeeper to handle their accounts; ideally, someone who has completed a bookkeeping certification program or course in Canada. Because bookkeepers track the influx and efflux of money, business owners can look at the financial statements to get insights into how the business is doing. This helps them in making informed business decisions.
Moreover, double-entry accounting reduces the risk of accounting errors and improves financial transparency that single-entry can’t provide.
Tools to Make it Easier
Fortunately, there isn’t much need to buy general ledger books, pencils and erasers to record transactions. Bookkeeping software makes accounting secure and error-free. With some research, you can find the ideal accounting software for your business.
You will still need a bookkeeper, even if you use accounting software like QuickBooks or Sage. But the ability for you, as a business owner, to enter transactions and data will make it easier to hand over all of your reports and information regardless of the size or nature of your business. Within larger organizations, the bookkeeper may be in-house staff, though the result is the same: everything needed is stored in one place, and the transactions are tracked and recorded correctly.
Most of the software accounting tools integrate with other business tools such as online banking, e-commerce and point-of-sale payment methods. All of this combines to deliver increased accuracy in transaction entries and a reduction in errors or the potential for fraud.
Purchasing or making monthly payments on accounting software may be more expensive than the old book and pencil method, but the value is far superior. Business-appropriate software and a qualified and experienced bookkeeper can support your business by maintaining accurate financial records and ensuring that your accounts are up-to-date. To ensure that you have a solid understanding of best practices, consider signing up for online accounting courses and additional continuing education courses.