Types of Bookkeeping
Bookkeeping is a vital part of finance management that tracks and records cash flow. It is a holistic approach to keeping an eye on every fiscal transaction, overcoming ambiguity, and enabling informed decisions. It helps keep the company’s finances up-to-the-minute, correct, and complete. Bookkeeping is carried out based on one of the following systems:
- Single entry Bookkeeping System
- Double Entry Bookkeeping System
Each system adheres to distinct practices and approaches with the goal of ensuring utmost financial accuracy. With that being said, let’s learn more about these types of bookkeeping systems, their implications, and their methods.
Single-entry Bookkeeping System
Counted among the most common types of bookkeeping systems, the single-entry system is mainly used by small businesses for its ease of use. The single-entry system essentially records each transaction one time in one account, hence the name. It spans different facets of financial transactions including cash disbursement, cash receipts, sales, and purchases.
This system records said transactions in the accounts receivable. Likewise, funds spent on equipment and stocks make their way to the program’s notes section.
For example, if a business secures credit from a lender, this system records such a transaction as an income. While the single-entry system is fairly simple to carry out, it can create issues while balancing the account or creating financial statements.
Example of Single-entry Bookkeeping System
Let’s understand how these bookkeeping systems work through an illustration.
Single-entry bookkeeping system
Imagine you run the auto component store. Here’s how transactions recorded via this system look like:
Total Sales: $15
Total Purchases: $8
Net Profit: $15 – $8 = $7
As evident, this system merely records what comes in and goes out with zero clarity on assets, liabilities, and equities. Hence, using it won’t be practical when account balancing or creating financial statements.
Double Entry Bookkeeping System
A double-entry system is among the most used types of bookkeeping system owing to enhanced transparency and accuracy. Being favored by most businesses, it is a staple for keeping finances intact and error-free.
This system primarily involves recording each transaction twice, once as a credit and once as a debit. In other words, this system ensures dual recording of each transaction, enhancing financial vitality and tracking.
This system accommodates various fields for recording distinct transaction types, including cash receipts, sales, stock purchases, and property acquisition. It also houses various tools for creating comprehensive financial statements.
Example of a Double-entry bookkeeping system
A double-entry bookkeeping system renders an explicit view of your finances through dual entries, once in a credit and once in a debit. Whereas debit shows transactions that increase assets or expenses, credit demonstrates entries that increase liability, equity, or revenue.
This method enhances financial oversight, ensuring the accounting equation (Assets = Liabilities + Equity) stays balanced. Anyway, in the purview of the above example, here is how double-entry bookkeeping records transactions
Journal Entry for the Purchase:
| Date | Account | Debit ($) | Credit ($) |
| 2024-08-14 | Inventory | 8 | |
| Cash | 8 |
Journal Entry for the Sale:
| Date | Account | Debit ($) | Credit ($) |
| 2024-08-14 | Cash | 15 | |
| Sales Revenue | 15 |
Methods of Bookkeeping System
Now you have learned about different types of bookkeeping systems, take a closer look at different methods of bookkeeping systems
Computerized Bookkeeping System
Several computerized systems have been introduced to ease bookkeeping endeavors, each offering comprehensive control over cash flow via single and double-entry methods. These systems cater to diverse demands, from single owners to bigger organizations. However, professional assistance will be required to use these systems to their full potential. That’s where third-party service provider Adviso comes into play.
Virtual Bookkeeping System
A virtual bookkeeper is a digitized version of a traditional bookkeepers who offer tailored services. This system is popular among businesses dealing with complex accounting endeavors. A Virtual bookkeeper offers more affordable services than their traditional counterparts, making them an ideal option for most businesses. From invoices, payroll ledgers, and expense receipts to accounting tasks, a virtual bookkeeper can ease your finances to the next level while having holistic control over cash flow.
Manual bookkeeping system
Manual bookkeeping is more of an old-school method of managing transactions. It is widely used across businesses with a smaller footprint. Apparently, this system is prone to human errors, translating to hindered accounting management. Unlike the above systems, this system requires manual recording of accounts receivable and payable across physical ledgers such as sales books, cash books, and purchase books. The manual bookkeepers come across overwhelming numbers of transactions in the form of purchase orders, quotations, remittance advice, and sales invoices.
Why Choose Adviso For Bookkeeping Endeavors?
Bookkeeping is a complicated affair. Yet, many businesses strive to manage things on their own, leading to compromised financial management. May appear otherwise, but bookkeeping contributes significantly to the company’s growth. It requires expertise and expert oversight.
Adviso is cognizant of bookkeeping endeavors, methods, and its nitpicks. We offer top-tier bookkeeping services to diverse clients without breaking the bank. Whether you manage a sizeable business or run an auto part store, Adviso’s services will keep finances intact with amplified oversight and timely reporting. We span different types of bookkeeping system and can offer tailored service based on your needs.
Conclusion
Bookkeeping is a professional field where bookkeepers deal with complex financial transactions and recording. Since bookkeeping requires professional oversight and acumen, managing it can turn out to be a hassle for most companies. That is why relying on professional bookkeeping services is paramount.
Read Our Article: Difference Between Bookkeeping and Accounting
