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Business Bookkeeping : The Two Primary Methods Of Bookkeeping

Todays Date: November 12, 2018

Every business that hopes to stay organized and track the money entering and leaving the company needs to record its transactions. This is called bookkeeping and keeps track of assets, revenue, expenses, and other monetary components. There are two different methods used by which the books are balanced. These are known as double entry bookkeeping and single entry bookkeeping.

Double entry bookkeeping is a system of financial recording in which two or more accounts are affected by each transaction. Today, double entry bookkeeping almost always takes the form of a series of credits and debits. All of the credits into an account are added up and as well as all of the debits from an account. The sum of credits and debits are then compared. If the figures produced are equal to one another, then the books are balanced. Double entry bookkeeping is effective at indicating errors because of this structure.

Because each transaction has an equal and opposite effect on one account from another, positive and negative signs are assigned to credits and debits respectively. One account is increased at the same rate another is decreased. These records are kept in books called ledgers. Because double entry bookkeeping involves at least two accounts being affected by the same transaction, each account receives its own ledger. This constitutes a sort of financial proofreading process. As one credit or debit amount is recorded in one ledger, the opposite action of the same amount must be recorded in another. By entering the number twice, it is ensured that the books will balance when all of the figures are tallied.

As you can see by just scratching the surface, double entry bookkeeping requires skill and training. What, then, about rather small businesses that don’t produce adequate numbers to necessitate a team of experienced bookkeepers? Single entry bookkeeping is the solution for small business owners who can get by with recording transactions on their own. Bear in mind that single entry bookkeeping only works for businesses that experience low volumes of transactions because it records only the essential accounting information such as cash, accounts receivable, accounts payable, and taxes. Single entry bookkeeping is beneficial, though, because of how much cheaper it is to maintain.

In today’s world, double entry bookkeeping is the method almost all businesses practice. Smaller businesses that don’t need to keep track of all those numbers use single entry bookkeeping. Whichever method is used, it is a necessary component of any successful and organized business.

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