Money has no permanent address. It keeps moving! It’s you who is accountable for documenting somewhere, where it comes from and where it is going to take big, small decisions in life.
Bookkeeping is the name of the game or can we say habit! Accounting and bookkeeping are methods of measuring, documenting, and presenting financial information for a business.
In this article, we will explore single entry vs double entry bookkeeping.
Bookkeeping: Introduction & Importance
The vehicle of business runs on the fuel of money!
To keep it on the road, you must keep track of the fuel. And bookkeeping does exactly that, even more!
Business involves hundreds of thousands of financial transactions and if not for bookkeeping it’s almost impossible to keep a weather eye on your finances.
In essence, bookkeeping is the daily tracking of a company’s monetary transactions. Proper bookkeeping helps management use all information on their books in making important operating, investment, and financing decisions.
One who performs the bookkeeping job or manages all financial data for the company is called a bookkeeper (or accountant in some companies). They not only assist company owners or corporations in keeping track of their earnings and expenses by documenting daily financial activities and generating accounts, but they also ensure compliance with applicable standards.
Types of Bookkeeping
Bookkeeping around the world is typically done in two ways – either using a Single Entry System or a Double Entry System.
Which bookkeeping entry system is suitable for your company depends on myriad factors but majorly on the size of the business. Cash-based (aka accrual-based), Cash Registers, Journal, Ledger, Trial Balance and Cash Flow Statement areseveral other bookkeeping methods. Without further ado, let’s see ahead what these two types of bookkeeping are and how they are different from each other.
What is Single Entry Bookkeeping?
Single-entry bookkeeping, also known as single-entry accounting, is a simplistic technique of bookkeeping that depends on a one-sided accounting entry to establish financial records. This is a cash-based bookkeeping approach that keeps a diary of receiving and leaving cash.
Petty cash, accounts payable and receivable, and other related activities such as inventory and travel expenditures are kept in separate accounts.
Most businesses use do-it-yourself bookkeeping software for single-entry bookkeeping to save time and sidestep the errors of manual calculations.
A cash book is an excellent example of this bookkeeping type. The single-entry accounting example below will help you better comprehend the idea.
Example of Single-Entry Bookkeeping System
Assume a bookkeeper uses this model to record the debit and credit entries for all transactions that occur in a week.
- 1st day of the week: Suppose he has an AED 12,000 cash balance at the beginning of the first week in July. As a result, this will be the first entry
- 2nd day of the week: He spends AED 5,000 on new systems. Since this is an expenditure, he subtracts it from the cash balance, leaving him with AED 7,000
- 3rd day of the week: His customer pays an invoice for AED 1,500, which is income. So this amount is debited to the account and increases the account balance to AED 8,500.
- 4th day of the week: He paid bills for office maintenance for AED 2000. So he subtracts this amount from the existing balance.
- On the 5th day of the week: He bought a new AC for his office for AED 5,700 in cash.
- The last day of the week: He left with AED 5000 in his office account.
What is Double Entry Bookkeeping?
Double-entry bookkeeping is an accounting method where every transaction is documented in two accounts – a debit to one account and a credit to another – because it is believed that every financial transaction has equal and opposite effects in at least two different accounts.
With a double-entry system, credits are offset by debits in a general ledger or T-account. Say, if a company takes a loan of AED 50,000 from a bank then following the double-entry bookkeeping method the assets will be credited AED 50,000 and liability will be debited AED 50,000.
It is used to satisfy the accounting equation: Assets=Liabilities+Equity.
Expense, Income, Capital, Liability, and Asset are the various accounts that act as the deciding factor behind the types of double-entry accounting. You must be well-acquainted with all of them to master the art of double-entry bookkeeping. Look at the example of the double-entry bookkeeping system, with the same transactions as those we saw in the example of the single-entry booking system above:
Example of Double-Entry Bookkeeping System
If you look at all three transactions in the example below, you can observe that total credit and total debt are the same, i.e., AED 8,500.
The starting balance for the week is AED 12,000. Rent paid to the landlord.
Office furniture bought for AED 2000.
Meanwhile, the customer pays an invoice for AED 1500.
Key Differences Between Single Entry and Double-entry Bookkeeping
Although both the terms are self-explanatory enough, you might want to know what makes one better than the other. Refer to the below-drawn table of differences between the two bookkeeping approaches.
Single Entry Bookkeeping Vs Double Entry Bookkeeping
These are the primary differences between double entry vs single entry accounting with examples.
Accounting & Bookkeeping Assistance in Dubai
If you can’t sleep, start bookkeeping!
Non-commerce graduates can relate to the pun.
Bookkeeping can be such a drag for you if you have so much on your platter. And maintaining an accounts department or in-house accounts team can put a dent in your account.
- An outsourced bookkeeper can be an invaluable resource for you, especially when tax time is around the corner, since up-to-date financials are essential when you need to file your taxes.
- Most businesses prefer hiring an accounting & audit firm in Dubai as they are familiar with the benefits of hiring an experienced accounting service provider in Dubai.
- One of them is that by outsourcing their bookkeeping and accounting functions to external professionals, they can get timely financial advice and most importantly can have all the information handy that is necessary to prepare taxes accurately and quickly.
By delegating their bookkeeping & accounting functions to an experienced and reputed bookkeeping services provider company, they do not just get to enjoy the mental peace as the work is being done by experts. But also extra time, money and energy saved from not maintaining the internal staff.
If you too are looking for top-rated accounting firms in Dubai to look after your bookkeeping and other financial tasks, then Adam Global Auditing & Accounting is the address to be!
Discover how our finance specialists can help you in your free consultancy!
Read More : What is Bookkeeping ? Why is it Important for Your Business ?
Refer to the below-mentioned table of merits and demerits of the single-entry bookkeeping system:
FAQs
What are the advantages and disadvantages of single-entry bookkeeping?
Refer to the below-mentioned table of merits and demerits of the single-entry bookkeeping system:
What are the advantages & disadvantages of double-entry bookkeeping?
Go through the table below to quickly know the pros and cons of the double-entry bookkeeping model.