Single Entry Vs Double Entry Accounting Systems

For many small businesses, bookkeeping can be one of the most daunting tasks when it comes to the accounting side of their business. In the past, most firms had one set of books, which included their revenues, expenses, which all finally got posted to their general ledger. This paper method of accounting was the only way to record all transactions at the time, and it left a lot of room for error and malfeasance. Now there are many programs that help to eliminate these possible mistakes, and can even help prevent human error by catching a wrong entry. These programs are not only helpful for small businesses but can even be used for one's personal life to eliminate the clutter of paper records while also keeping the information safe.

The first common type of software that is available to use for bookkeeping is called a single entry system. The single entry system works like a normal checkbook. There are entries for debits and credits on a specific account, but there are no matching entries to go along with it. Take for example a small business that purchases inventory from a supplier on credit. When the business goes to pay the bill, there will only be a credit to cash and no matching entry out of accounts payable. Now although this system is extremely simple in the fact that the user only has to worry about one account, it leaves the door open to possible error. If the user enters a wrong number, they might not catch it until they reconcile their software with their company's bank statement.

The second type of common bookkeeping software is a double entry system. These types of programs are very reliable and require the user to match debits and credits at the same time for a single entry. Take for instance a user pays an outstanding utility bill. When they entered the payment into the software, the entry would be a debit to the utility expense account, and a credit to cash. The advantage here is that most double entry systems on the market will not let the user proceed if the amounts do not match, thus preventing human error and incorrect financial statements. The majority of small businesses use this type of software because of its error prevention as well as its ease of use when producing statements directly from the account list.

For many businesses, double entry accounting will be the more appropriate software to use for their bookkeeping process. Its reliability, error prevention, and statement production is more advantageous to single entry systems. Although single entry might be more prone to error, it can be extremely simple and be more than sufficient for an individual looking for a paperless way to keep track of their routine finances.

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