Difference Between Single Entry and Double Entry Bookkeeping

Bookkeeping is the foundation of financial management for businesses, ensuring accurate recording of transactions and financial health assessment. To manage your financial transactions, there are two distinct methods: single entry and double entry bookkeeping.

While both are used to track financial transactions, they differ from each other in terms of approach, complexity, and usage. Therefore, understanding the difference between single entry and double entry bookkeeping is important to choose the right system for your business.

In this article, we will dive deeper into their differences along with their benefits and limitations.

What is Single Entry Bookkeeping?

Single-entry bookkeeping is a kind of system in which every transaction is recorded as the single-entry within a journal. It is a cash-based bookkeeping method which records all the incoming and outgoing cash within a journal.

This system does not work on the debit and credit’s principles and does not provide a complete overview of a company’s financial position.

How Does the Single-Entry System of Bookkeeping Work?

Within a single-entry bookkeeping, a cashbook is maintained to record income and expenses. First, you will add the existing cash balance for a particular period, then add received income and subtract the expenses. After that, you can calculate the cash balance left.

A cash book comprises the following data:

• Date: This is the date on which a transaction takes place
• Description: It includes transaction information
• Transaction value: This value can be added or deducted
• Balance: It is the remaining cash balance after adjusting the income and expenses.

Pros of Single-Entry System

The single-entry system provides plenty of benefits such as it is simple to use and needs a few accounts to manage. Here are some other benefits of using it:

• Easy to maintain as less accounting expertise is required
• Needs minimal record keeping, thus less time consuming
• It is a cost-effective option as no special accounting software is needed
• Offers a simple overview of all personal accounts and cash flows
• Easier to comprehend even for non-accounting professionals
• Less chances of data errors due to its simple accounting

Cons of Single-Entry System

Despite offering multiple benefits, a single-entry system has its cons, as it does not help create detailed financial reports. Moreover, it is not suitable for a business needing auditing. Here are some other disadvantages of using this system.

• Limited financial data makes it difficult to analyze the financial health of any company
• Does not display a clear picture of assets and liabilities
• Unable to create detailed reports like balance sheets and trial balance
• It does not comply with the accepted accounting protocols
• Difficult to identify complex transactions

What is Double Entry Bookkeeping?

Double-entry bookkeeping is a type of accounting method where all the transactions are recorded two times as debit or credit. Under this system, the debit account column must be equal to the credit account column.

It maintains the fundamental accounting equation, i.e., Assets= Liabilities + Owner’s Equity. Double-entry bookkeeping represents a comprehensive view of the company’s financial position.

How Does the Double Entry System of Bookkeeping Work?

Under the double entry system, debit and credit columns must always match to record error-free transactions. This system works on the following accounting principle as shown below:

Assets= Liabilities + Owner’s Equity

Under this,

• Assets: The money owns by a company
• Liabilities: This includes the debt owned by a company
• Owner’s Equity: Owner’s invest in the organization
• Income: Money earned by a business by selling its products or services
• Expenses: Money a company spends on its operations

When you balance out both debit and credit entries of your business, then you can create the “Balance Sheet”.

Pros of Double Entry System

Double-entry bookkeeping system helps create several financial statements like trial balance and balance sheet. It also supports financial budgeting and forecasting. Let’s look at other benefits of using this system:

• Offers an accurate financial picture of any business
• Assists in generating important financial statements
• Supports detailed analysis of performance indicators and financial ratios
• Helps in easily identifying errors during the trial balance
• Streamlines financial analysis, forecasting, and budgeting
• Complies with generally accepted accounting principles (GAAP) and other accounting standards.

Cons of Double Entry System

A double bookkeeping system is quite complex to use and creating financial statements with it takes a lot of time. Additionally, here are some other limitations of using this system:

• Needs proper accounting knowledge and experience to use
• Complicated to use and time consuming as compared to the single-entry system
• Increases business costs as specialized software is required
• Financial statements might be difficult to understand due to complexity
• Errors might occur while recording transactions leading to the imbalance in debit and credit entries.

Key Difference Between Single Entry and Double Entry Bookkeeping with Example

Both single entry and double entry bookkeeping are used in accounting, but they differ from each other in several ways. For example, single entry is easy to use whereas double entry system is complicated to use and needs expertise in accounting.

Similarly, single entry bookkeeping is used to manage cash and personal accounts whereas double entry bookkeeping is used to record all transaction types. Let’s look at the complete differences in detail below:

Similarities Between Single Entry and Double Entry Bookkeeping

Although single entry and double entry systems differ in several aspects, they do share some similarities. Both are used for financial data analysis and their accuracy depends on the person recording transactions.

Here are some other similarities that you will find between single entry and double entry bookkeeping systems:

• Both systems are used to record financial transactions and manage accounts records
• Single entry and double entry bookkeeping require proper documents and supporting evidence to record transactions.
• Both single entry and double entry bookkeeping are used by organizations of all types.
• These accounting systems play an important role in providing accurate financial information for decision making.
• Single entry and double entry systems equally contribute to the preparation of various statements and reports.
• They require periodic reconciliation of accounts to ensure accuracy.
• Both single entry and double entry system need periodic accounts ‘reconciliation for accounting accuracy.

Double Entry vs Single Entry: Which is the Best?

The choice between a Single-Entry System and the Double Entry System depends on the details and accuracy you require in financial reporting. The single-entry bookkeeping system is suitable for small businesses that record simple transactions.

Whereas a double entry bookkeeping system is more suitable for big enterprises that need to record all transaction types and a detailed overview of their company.

Understanding the differences between these two will help you to choose a better system for your business to streamline the accounting procedures.

Suggested Read: Difference Between Bookkeeping and Accounting

Single Entry vs Double Entry Bookkeeping: FAQs