{"id":233,"date":"2023-04-17T10:17:19","date_gmt":"2023-04-17T10:17:19","guid":{"rendered":"https:\/\/www.smallbizgenius.net\/?p=233"},"modified":"2023-06-19T03:26:11","modified_gmt":"2023-06-19T03:26:11","slug":"types-of-bookkeeping","status":"publish","type":"post","link":"https:\/\/www.smallbizgenius.net\/knowledge-base\/types-of-bookkeeping\/","title":{"rendered":"A Guide to Different Types of Bookkeeping"},"content":{"rendered":"\n

Bookkeeping is the process of collecting and organizing data on all of your business\u2019s financial transactions. Every expense, payment, as well as any profit is accounted for. This includes sale invoices<\/a>, payroll ledgers, accounts receivable, assets, and liabilities.<\/p>\n\n\n\n

Bookkeeping is essentially your business\u2019s cash flow management. It shows how well the company is performing and which areas need attention. Documenting all cash flow in detail gives you a complete overview of your financial activities and your business\u2019s financial state.<\/p>\n\n\n\n

This overview of the types of bookkeeping will touch upon the difference between single-entry and double-entry bookkeeping, what methods of bookkeeping exist, and how important regular recording of financial transactions is for running a successful company.<\/p>\n\n\n\n

Basic Bookkeeping Transactions<\/strong><\/h3>\n\n\n\n

Incoming and outgoing finances are the two main types of business transactions under your bookkeeping. <\/p>\n\n\n\n

Incoming finances are your income\/revenue, which is all the money earned, sales, and profits. In turn, they become assets, which are all the existing property owned by your business. Any preexisting cash and property are also included.  <\/p>\n\n\n\n

Outgoing finances are the company\u2019s liabilities – mandatory payments, taxes, and loan installments – and expenses: money used to pay for services, employee salaries, and operational costs. <\/p>\n\n\n\n

After these two main bookkeeping categories, we have equity or the difference between the company\u2019s assets and liabilities.<\/p>\n\n\n\n

How Does Bookkeeping Differ from Accounting?<\/h3>\n\n\n\n

Bookkeeping needs to be done first, before the accountant can analyze the company\u2019s books. It is an essential part of any business finance management.<\/p>\n\n\n\n

Accounting is the later process where all collected and complete financial data – the trial balance – is analyzed. Accounting includes drawing financial statements based on which timely business decisions can be made. Accountants are also responsible for financial advice and tax returns.<\/p>\n\n\n\n

Methods of Bookkeeping and How They Work<\/h3>\n\n\n\n

Let’s take a look at the specifics of the single-entry and double-entry method.<\/p>\n\n\n\n

Single-Entry<\/strong><\/h4>\n\n\n\n

The single-entry method records individual transactions as they happen. Once a sale or payment is received, or an expense is made, it\u2019s documented as a stand-alone entry, plus its minimal details.<\/p>\n\n\n\n

This bookkeeping method is best suited for smaller businesses. It\u2019s also adequate for operations where there\u2019s little to no physical sales or inventory involved, i.e., digital transactions, services, and those with little or no physical goods to exchange. <\/p>\n\n\n\n

Single-entry systems offer multiple advantages: They are simple and therefore save you time and money. Besides, they usually don\u2019t require additional staff or training. <\/p>\n\n\n\n

Of course, there are some downsides as well. These include possible loopholes that can be exploited to cover up mistakes and fraudulent transactions, especially if no software or app is used and everything is manual. Furthermore, there is no fast way to check for balances, liabilities, and on-time payments, which can result in penalties and late payments. Also, arithmetic errors in the account totals are relatively common.<\/p>\n\n\n\n

Using these simple bookkeeping systems for small businesses is a feasible solution, but it most likely won\u2019t be enough for complex operations, where ready financial snapshots are often necessary to help make informed and timely decisions.<\/p>\n\n\n\n

Double-Entry<\/strong><\/h4>\n\n\n\n

Double-entry systems are more complex since every transaction is entered twice: in the left-hand account under Debit and in the right-hand account under Credit. Double-entry bookkeeping is used for larger and more complex business operations, and it works like an error-detection tool since the sum of debits must always equal the sum of credits. If it doesn\u2019t, it points to an error. Using the double-entry system makes it easier to monitor all activities and ensure all your books are balanced. The rough total of your capital gap is easily determined. <\/p>\n\n\n\n

However, it\u2019s a time-consuming and costly process, and utmost accuracy is needed when making entries. It usually requires extra training, staff, and software for it to be fast and effective. Also, due to the complexity of the system, finding where the error is and correcting it can be challenging. <\/p>\n\n\n\n

Compared to the single-entry bookkeeping system, double-entry is a more thorough, time-consuming approach to bookkeeping. Most smaller businesses don\u2019t have time, resources, and extra people to work on detailed bookkeeping. But the results help companies cover everything being exchanged. It also provides instant access to all data. <\/p>\n\n\n\n

These are the two basic systems a company can use for bookkeeping. In the past, all entries had to be made manually. With the advancement of technology, various kinds of accounting software<\/a> and apps have come to the bookkeepers\u2019 aid.<\/p>\n\n\n\n

Digital Bookkeeping Systems<\/strong><\/h3>\n\n\n\n

Businesses can reap many benefits from using bookkeeping apps. All primary operations are automated and can be carried out remotely from your phone anytime, anywhere.<\/p>\n\n\n\n

The main features and automated functions of these apps include:<\/p>\n\n\n\n