Untitled

[avbookkeepings]

Know your target market!

https://avbookkeepings.wixsite.com/my-site-1

[avbookkeepings]

Here’s your quick guide for your QuickBooks software!

https://avbookkeepings.wixsite.com/my-site-1

[avbookkeepings]

https://avbookkeepings.wixsite.com/my-site-1

[avbookkeepings]

TYPES OF BOOKKEEPING SYSTEMS

WHAT ARE THE TYPES OF BOOKKEEPING SYSTEMS?

Bookkeeping is an important clerical process of accounting. Primarily, it is concerned with procedures that include making and keeping accounting records or financial transactions. In simpler terms, bookkeeping is the “how” of accounting, without it, it would be impossible to accomplish any accounting process because it involves gathering important information that the business needs to grasp a picture of its business situation. Here in this article, we will be learning the different types of bookkeeping systems and methods, their advantages, and disadvantages, and most importantly to identify which bookkeeping system and methods are appropriate and effective for your business.

TWO TYPES OF BOOKKEEPING SYSTEMS There are two main types of bookkeeping systems that are still evident in today’s digital era, single-entry bookkeeping, and double-entry bookkeeping. A. Single-Entry Bookkeeping System If your business or client’s business has very small, minimal, or uncomplicated transactions, this system is highly suggested. It is also often referred to as a simple, practical, and informal way of recording because it only records cash sales and business expenses when incurred – meaning, an entry is only made to the sales journal when revenue is received, and an entry is only made to the disbursement journal when expenses are already incurred. B. Double-Entry Bookkeeping System If your business on the other hand, have more complex and routinely transactions, this system is more appropriate. This system is the standard method of record keeping that is commonly used by most businesses, accountants, and bookkeepers. Furthermore, it is also based on the “dual-aspect concept” that for every change in financial transaction, there would always be a two-sided effect (concept of debit and credit). According to the book of Valencia and Roxas entitled Basic Accounting (2015), it is also known as the most acceptable system in recording accountable transactions and events due to the following reasons: - It results in more accurate accounting records and financial reports. - It allows a more convenient means of recording business transactions and events. - It also provides numerous ways to safeguard and check intentional and unintentional errors committed by accountants.

ADVANTAGES AND DISADVANTAGES OF THE TWO BOOKKEEPING SYSTEMS

Advantages of Single-Entry System: - Beginner friendly. It is easier to understand even for individuals that do not have a thorough background in the field of bookkeeping and accountancy. - Business transactions can be simply recorded in a physical journal or simple accounting programs like Excel and Google sheets. Disadvantages of Single-Entry System: - Prone to more errors and incompleteness. - It does not completely reflect the situation of the business. - Difficulty in audit processes as there are no counterfeiting accounts that can be used as comparisons to each business transaction. Advantages of Double-Entry System: - More detailed information as it includes data consisting of changes in business assets and/or liabilities in equivalent amounts. - The business can easily track and keep a record of every transaction that happens within and easily identify its effect on every element. - The business can easily compare the business’ condition and standing from one period to another. - The matching principle / dual aspect concept allows the business to determine the correct profit and loss with higher detail. Disadvantages of Double-Entry Bookkeeping: - It is more complex to understand and apply and requires more effort to learn beyond single-entry system basics. - Compared to the single-entry system, it will require more time to record each financial transaction. - Adapting this type of system into the business entails more costs because it requires more attention to details.

WHICH BOOKKEEPING SYSTEM IS RIGHT FOR YOU?

Here are some tips that can guide you in choosing which system is appropriate for your business: 1. Business size and complexity of transactions – As mentioned in the previous section, if your business only consists of simple and less tedious transactions, a single-entry system is more appropriate. If otherwise, a double-entry system is advisable. 2. Costs – Double-entry system entails more costs compared to the single-entry system as it includes more complex transactions that are required to be recorded in a more organized and detailed manner. Hence, the capacity of the business to hire a bookkeeper affects the decision as to what system is most appropriate for the business. 3. Commitment of the business – All businesses aim for continuous growth, and we are all aware that growth also entails increased complexities and changes. This also means that the business will soon transition from basic to complex financial transactions. If in case this will happen to your business, your commitment to accepting and adapting the change from a single-entry system to a double-entry system will highly affect your decision.

Choosing whether to use a single-entry or double-entry system lies with the owner of the business. Regardless of the system chosen, it is best to consult your bookkeeper! If you don’t have one, it is best to hire your own bookkeeper in order for you to avoid making errors that may tend to cost you more and negatively affect your business.