Differences Single-Entry and Double-Entry Accounting

Single-Entry vs Double-Entry Bookkeeping — Complete Guide (9) | Saldoinvoice.com

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Bookkeeping is an essential part of a business of any size. There are two main types of such activity, the choice of which depends on the characteristics of your particular company.

In this article, we will take a closer look at double-entry vs single-entry accounting and discuss their pros and cons so that you understand all the nuances of each variety and can determine which one is right for you.

What Is Single-Entry Bookkeeping?

The basis for understanding these species lies in their names. What is a single-entry system in accounting? It is a personal- and cash-oriented method that involves keeping track of a company’s finances with one entry per transaction. You can get income or spend money; any such action will have only one entry in your ledger.

What is a single-entry system with an example? Here is a simple case of a table used in this approach:

Main Elements of Receipt Maker
1. Title	Your document should have a clear title such as “new receipt”. This way, the recipient can quickly distinguish your file from dozens of others.
2. File Details	They include the document ID, the invoice number, the date the file was created, and the date the payment was received.
3. Parties' Data	Your receipt for a customer should contain personal or business details of both the payer and payee: names, contact details, addresses, etc.
4. Order Description	List all goods and services which the customer has paid for. Do a detailed breakdown describing the items, amounts, and costs.
5. Payment Method	A real receipt should also include the method by which the transaction was made.
6. Total Sum	Specify how much the customer has deposited into your account. It can be the total cost of the order or part of it (depending on your agreement).
7. Notes	Use this field at your discretion. Thank the customer for contacting you, add comments about the use or storage of the items, offer a discount on the next order, or enter the remaining amount due if the payer sent only a part of the total order amount.

The details and methods of the single-entry system might vary depending on the specific business, but usually, you need to record the following data about each transaction:

date of receipt or write-off of funds;
name or description of a transaction;
the sum of expenses or income;
your balance after a transaction;
balance at the end of the period;
notes (optional).

At its core, the system is quite simple. You need to keep track of incoming payments and expenses, as well as issue bills, for example, using an invoice sample for consulting services or handcrafted goods. It makes the approach efficient for the self-employed, small companies, and new businesses. You can make income statements based on such records, but they are not suitable, for example, for tax preparation due to a lack of detail.

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What Is Double-Entry Bookkeeping?

Knowing the second method will help you understand the possibilities and limitations of single-entry accounting. So what is double-entry accounting? It is a more detailed, modern, and professional way to record transactions.

It involves making two types of entries for one transaction: debit and credit. That is, the amount of one account increases, and the amount of the second decreases accordingly. Here is a simple example of a double-entry bookkeeping system:

The concept of a double-entry system minimizes the possibility of errors and fraud, making it easy to identify them thanks to a simple formula. The sum of all your accounts’ debits should equal the sum of the credits.

If your total balance is not zero at the end of the calculations, there is an error in your records. Data verification is easy since, in the double-entry system, you always see the direction of financial flows in your balance sheet.

Use a budget app sync bank account from every financial institution in which you are a client. It will allow you to collect information about all transactions in one place and simplify accounting.

Difference Between Single- and Double-Entry Accounting

To better understand the difference between single-entry and double-entry methods, we have created this short table that compares the main details of both systems:

Single-Entry Method	Double-Entry Method
Transaction information might be incomplete or partial;	Accounts for both the credit and debit side of each transaction;
Suitable for personal and cash accounts;	Suitable for personal, cash, real, and nominal accounts;
A simple solution that does not require special skills or software from you;	A complex and comprehensive approach that requires in-depth knowledge of accounting;
Used by self-employed and new or small companies that have little cash flow;	Universal; used by medium and large businesses and corporations with multi-level financial flows;
Not suitable for tax preparation, ratio or true financial standing analysis, and other complex calculations;	Based on such a system, you can conduct any analysis of the company’s financial activities;
High probability of errors and fraud due to insufficient data.	Minimizes the likelihood of errors and fraud, making it easy to identify them.

Benefits of Double-Entry Accounting

If you are still not sure which method is better for you and wondering “What are the advantages of the double-entry system?”, here is a short list of the main benefits you will get from this approach:

your transaction records are as complete and detailed as possible;
you can easily track any financial flows and directions;
the likelihood of errors, misinterpretations, and fraud is minimized;
based on such records, you can conduct any complex financial analyzes and audits;
using this method, you can keep accounting records in companies of any size.

However, to fully master this method, you will require specific knowledge. Besides, you also need to use specialized software; a simple table is not enough.

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Disadvantages of Single-Entry Bookkeeping

Among the disadvantages of a single-entry system, the following points can be distinguished:

records are incomplete; they neither include receivable and payable accounts nor take into account the inventory;
they are not suitable for financial analyzes and audits;
this method does not allow tracking the direction of financial flows;
in such records, an error can easily creep in, which will not be easy to identify;
the system is suitable only for small businesses with a simple financial picture.

This method can be considered a good basis for starting a business, for example, if you are a freelancer who provides creative services. However, if you are in the delivery business and get paid on other dates, this way of accounting for transactions might not be good enough.

Choosing the Right Method

Summing up, the double-entry approach is more versatile. It is suitable for both small and large companies. However, not all entrepreneurs have the right skills or the opportunity to hire an accountant. Therefore, they can stick to the single-entry system. As the business grows and the cash flows increase, they can change the accounting model.

At the same time, in addition to the characteristics of a company, business owners should also take into account the laws of the region in which they do business. So, for example, the IRS in the US prohibits entrepreneurs whose sales are more than $5 million (total per year) from using single-entry bookkeeping.