Summary: There are two commonly used accounting systems, i.e., Single Entry and Double Entry Bookkeeping. They both are different in their approach to recording financial transactions and managing accounting records. In this article, we will look at the key differences between these processes and their advantages and disadvantages.
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.
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.
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:
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:
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.
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.
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,
When you balance out both debit and credit entries of your business, then you can create the “Balance Sheet”.
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:
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:
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:
| Key Metrics | Single Entry Bookkeeping | Double Entry Bookkeeping |
|---|---|---|
| Basis | Based on the cash book | Based on the debit and credit principles |
| Suitable Business | Small businesses | Medium to large enterprises |
| Records | Records cash and personal accounts | Records all types of accounts & transactions |
| Financial Information | Offers limited financial data | Offers comprehensive data |
| Trial Balance | No trial balance is prepared | Proper trial balance is prepared |
| Software | No special software is required | Special accounting software is needed |
| Error Detection | Difficult to identify data discrepancies & errors | Easy to detect data errors & discrepancies |
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:
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 System is used to record cash and personal accounts whereas the Double Entry System is used to record all transaction types. Single entry bookkeeping offers limited financial data whereas double entry bookkeeping offers comprehensive financial data.
The journal entry is like recording financial transactions whereas double-entry bookkeeping is a broader system that involves balancing out a transaction by recording it as both (debit and credit).
The double entry system is a type of accounting system used worldwide for maintaining accounts. On the contrary, a double accounting system is created for public utility firms to represent the organization's financial data to firms.
Debit and credit are two entry types that come under double bookkeeping. It is based on a fundamental accounting principle that is “for every credit, there must be an equal and opposite credit.”
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