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One of the most critical, complex, tiring, and time-consuming aspects of running a business is handling accounts. Every business transaction matters when you want to ensure growth, as well as stability, for your business.
Luckily, there are multiple ways to manage your business finances. One popular practice is using the single-entry bookkeeping method. It can not only help you track your transactions but also simplify monitoring your business’s overall performance.
Want to know how? This article is for you.
We’ve covered all the crucial concepts, including the single-entry bookkeeping definition, its system features, advantages and disadvantages, and single-entry vs. double-entry accounting.
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» What is Single-Entry Bookkeeping?
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Single entry bookkeeping is an accounting method where you can make only a single entry for each business transaction at a time. These entries tend to come under the classification of either expense or revenue. Think of single-entry bookkeeping technique as a way an individual manages their checkbook.
While following the single-entry bookkeeping method, you record transactions in a journal called a cash book. The cash book contains multiple columns to note the details of the transactions, such as date, transaction description, value, and nature (whether it’s an income or an expense.)
The cash book simplifies keeping track of your business’s receipts and spending.
This type of accounting is ideal for small businesses with limited transactions per month as managing data isn’t a hassle. You can fill in these cash books manually or get a single-entry accounting software.
With single entry bookkeeping, every transaction is recorded on a single line. In other words, there is only one line for every transaction.
» How does Single-Entry Bookkeeping Work?
Adapting the single-entry bookkeeping method of accounting for your business is simple. All you need is a cash book to get started to record the money coming in and going out for a specific period, say a week or a month.
Begin by recording the current cash balance you have for the month, for instance. Now as the month goes on, you’re supposed to add the money your business makes in that month (income) while subtracting your expenses. At the end of the month, calculate the amount (cash) you have on hand.
Wondering what your cash book must include? Here’s a list of the must-have columns:
- Date of the Transaction: Mention the date a transaction occurs
- Description of the Transaction: A brief information about the transaction, for example, rent for the office or a sale of a product
- Value of the Transaction: The value of each transaction is further divided into “Income” and “Expense”.
- Balance Amount: Carry out and record the sum of the balance amount, typically cash, you’ve at the end of the specified period.
To understand it even better, let’s assume we’re a small business recording our transactions for the month of September. Consider the following financial events that have taken place for us:
- We started the month with $7500 on 09/01/2024.
- A sale worth $2500 on 09/05/2024.
- Payment of our monthly property rent worth $3000 on 09/07/2024.
- Receipt of client payment of $650 on 09/15/2024.
- An expense worth $100 for electric repair work on 09/21/2024
- A receipt of advance payment from a client worth $1500 on 09/26/2024
| Date | Description | Income | Expense | Balance |
| September 1 | Starting Balance | $7500 | ||
| September 5 | Product Sales | $2500 | $10000 | |
| September 7 | Monthly Property Rent | $3000 | $7000 | |
| September 15 | Client Payment Receipt | $650 | $7650 | |
| September 21 | Electric Repair Work | $100 | $7550 | |
| September 26 | Advance Payment From Client | $1500 | $9050 | |
| September 30 | Ending Balance | $9050 |
» Key Differences Between Single-Entry and Double-Entry Bookkeeping
Double-entry bookkeeping is an accounting method where every transaction of your business is recorded in a debit as well as the credit account. Moreover, the amounts in your debit account must match the ones in the credit section.
Many newbie entrepreneurs, as well as individuals, often get confused between double-entry and single-entry bookkeeping methods of accounting. If you’re one of them, take into account the below paramount factors that differentiate the two:
› Number of entries per transaction
In single-entry bookkeeping, each transaction gets only one entry in the cash book. Hence, this method uses a single account for every transaction.
With double-entry bookkeeping, there are two entries for each transaction - one debit and one credit. That way, every transaction uses two accounts - one for debit and the other for credit.
› Transaction details
The single-entry accounting system is based on cash. It basically records the cash that goes out i.e. expenses and the cash that comes in i.e. revenue. It’s important to note that the cash in single entry bookkeeping includes not just physical cash but also card payments, checks, and electronic money transfers.
Double-entry accounting, on the other hand, tends to follow accrual accounting. And it considers multiple accounts - income, expenses, liabilities, assets, and equities.
› When the transactions are recorded
In single-entry bookkeeping, you need to record transactions when they take place.
In double-entry bookkeeping, transactions are recorded before they actually occur. For instance, you’d record an income before you actually receive the money.
Now that we’ve explored the key differences, let’s move forward to discover the pros and cons of using a single-entry accounting system.
» Advantages of Single Entry Bookkeeping System
› Simple to use
With the single-entry method of bookkeeping, you don’t need to be a pro at accounting. Any individual with or without an accounting background can manage the cash book. It is super easy to learn since there will always be a single entry for any transaction of your business.
› Cost-effective accounting method
The single-entry bookkeeping system is also a cheaper way to manage your company accounts. You don’t need to hire professional accountants full-time. Nor do you have to invest in an expensive single entry bookkeeping software tool.
All you need is a journal (cash book) and a pen/pencil. A typical cash book layout is pretty easy to make. Besides, you won’t require many books in a year, given the limited number of business transactions and overall volume of data.
As a result, this type of accounting ends up saving you a lot of money, time, and resource.
› Boosts financial management
Since you’ll be recording every expense and every revenue in your books, you’re more aware of the exact status of your funds. It also helps you recognize unnecessary expenditures, helping you take appropriate timely actions for cost control. That, as a whole, facilitates more effective planning and management of your finances in the long term.
» Disadvantages of Single Entry Bookkeeping System
› Fails to cater to big companies
The single-entry bookkeeping system is only ideal for small businesses and solo entrepreneurs. Businesses with large data volumes and a complex accounting process can’t benefit from a single-entry accounting system. That’s because there’s no way this method allows them to record and optimize their inventory, for instance, or accounts receivables. In such a case, double-entry bookkeeping is a better option.
› Potential oversight on errors
One of the biggest disadvantages of single-entry bookkeeping systems is the lack of a built-in mechanism for error detection. If there is a human error in recording a transaction, there’s a chance of it remaining undetected forever. Let’s assume you recorded an expense worth $500 while the actual spending amounted to $5000. Such inaccurate recording of transactions paints a false picture of your financial status.
› Can’t monitor assets
Like large businesses and public organizations, small businesses using single-entry accounting systems can’t track their assets. Because with single-entry systems, there are no balance sheets. No income statements. No other document to monitor the total assets and liabilities. As a result, it’s difficult to gauge the correct status of your financial footing or you might need separate asset tracking software for monitoring your assets.
› Can’t manage taxes
The single-entry accounting systems enable you to record financial transactions. But these transactions are incomplete. You only maintain a cash book, no other real accounts. Besides, there is no system to manage your taxes. That means you’ll have to use other tools to meet your tax requirements which can be tricky and time-consuming.
› Poor decision-making
With the single-entry method, there is a lack of clarity and accuracy in the overall financial records. That paints a false financial image, which, in turn, makes way for poor financial decisions. The result would be a delay in business growth as well as losses.
» Final Word
Every business has to master the art of handling its accounts to achieve goals and maximize revenues. One such way to do so is by resorting to a single-entry bookkeeping system. This type of accounting is not only easy to learn but also extremely affordable. It is ideal accounting for small businesses and individuals with very basic accounting requirements. For more complex accounting needs, however, it is advisable to opt for double-entry accounting.
