There are multiple ways a company can maintain its finances. Single-entry bookkeeping or accounting is a method many accounting professionals and business owners use to account for individuals and small businesses. Learning about single-entry accounting can help you keep complete and accurate financial records to track a business’ finances easily and monitor performance.
In this article, we define single-entry bookkeeping, provide its advantages and disadvantages, outline how it compares to double-entry bookkeeping, explain how to perform it and share an example.
What is single-entry bookkeeping?
Single-entry bookkeeping is an accounting technique that resembles balancing an individual’s checkbook. This system tracks cash disbursements and receipts. In a single-entry system, you can record each transaction using one entry at a time and classify it as either revenue or expense. A popular finance accounting tool that uses the single-entry system is a cashbook. This is a financial journal with columns where you can indicate sources and uses of the organization’s cash, among other descriptive features.
This bookkeeping system is efficient for small businesses with low data volume. You can manually fill in the cashbooks or use accounting software.
Advantages of single-entry bookkeeping
Here are some advantages of using a single-entry accounting system:
Offers a simple layout
Single-entry accounting is a straightforward accounting procedure because you record one entry at a time. This means individuals with little or no accounting experience can typically perform it. The simplicity of single-entry accounting often appeals to small businesses that may not have the funds to employ a full-time staff accountant. In this case, the business owner or an existing employee can use the single-entry system to keep the books for the business themselves.
Provides a cheaper accounting method
To make entries to a single-entry system, you only need a pencil and paper. Single-entry accounting only tracks revenue and expenses, which makes it economical because there’s no need for expensive accounting software. It also has a simple and easy-to-use layout, which eliminates the need for expert personnel and can help a company save on costs. Single-entry accounting systems are suitable for organizations with low data volumes, meaning they don’t require many books due to the small number of transactions.
Helps maintain finances
By using single-entry accounting, companies can visualize all funds coming in and going out of a business. This way, a company can observe any problems in its financial records and make changes as necessary. Companies can use a single-entry system to determine aspects of the business on which they’re spending too much. It can help them identify areas to cut business costs and improve their financial health.
Disadvantages of single-entry bookkeeping
These are some potential disadvantages of using a single-entry accounting system:
Not applicable to all businesses
Small businesses and individuals use single-entry accounting. In these systems, you can’t record a company’s financial transactions, such as inventory, accounts payable and accounts receivable . Accurately recording these transactions is crucial to a large business, so double-entry bookkeeping is a better option for big companies.
Unable to track assets
Another disadvantage of single-entry accounting is that it only tracks net income. It doesn’t allow the company or individual to create balance sheets or document any asset or liability. Public companies document their finances using balance sheets and income statements but can’t do so using single-entry accounting. This can prevent the company from fully monitoring its assets and liabilities. Big companies have a variety of assets, including many buildings, company vehicles and company office furniture.
Double-entry bookkeeping is more accurate at reporting the expenses coming with these types of assets. It’s also more challenging to track liabilities in single-entry systems. For this reason, they may not present the most accurate report of company finances. For example, you can record a loan as income in single-entry accounting. Conversely, you can document loans as income and liability in double-entry bookkeeping.
Unable to check for errors
Single-entry systems don’t have an inbuilt error detection, making it harder for businesses to detect errors of principle. For example, a business owner might record revenue as $1,000 instead of $10,000 and not notice or correct this error. An accounting error can lead to poor judgment and decision-making, which may affect the company’s profitability. If you document revenue incorrectly, the company may try to expense something it doesn’t have enough money to purchase. Due to the errors with revenue recording, there’s inaccurate reporting of the company’s financial status.
Unacceptable for taxes
Single-entry systems provide incomplete and inaccurate records of a business’ financial transactions. It doesn’t maintain and record real accounts except for cashbooks, making it challenging to use this entry system to determine a company’s financial position. This can also prevent you from determining the company’s tax obligations for the accounting period. Tax authorities don’t accept single-entry accounts for taxation for this reason.
Single-entry vs. double-entry bookkeeping
Single-entry and double-entry bookkeeping are two different accounting forms. They perform the same function of keeping a company’s financial records orderly but use different approaches. Here are the key differences between single-entry and double-entry bookkeeping:
Single-entry accounting is a straightforward accounting approach where you can record each transaction as a single entry in a journal. You can begin by adding your existing cash balance and then add the income you receive, less your expenses, to determine your cash balance. In double-entry bookkeeping, you can record transactions in at least two accounts, either credit or debit.
You can detect errors more easily when using double-entry accounting methods. You can compare the debit and credit accounts to determine if they match. If these accounts don’t match, it can indicate accounting errors. Single-entry accounting has no system to detect errors since it only allows a single entry for each transaction.
The main features in single-entry accounting are the date of the transaction, a brief description of its purpose, the transaction value and the balance. It doesn’t record all financial transactions but focuses on personal accounts such as debtors, creditors and cash. Double-entry accounting records the company’s assets, liabilities, owner’s equity, income and expenses. It provides an in-depth description of the organization’s financial status, allowing you to monitor its performance. You can use this information to make informed management decisions concerning the company’s future. Double-entry accounting methods offer more comprehensive financial reports regarding an organization’s financial transactions compared to single-entry accounting.
How to do single-entry bookkeeping
Single-entry accounting involves storing financial records within a table in a cashbook or cash journal. The cashbook commonly includes information such as the date and description of the transaction, the amount of the transaction and the total balance. Recording transactions using single-entry accounting is a straightforward process that includes the following steps:
1. Begin with the previous balance
Record the previous existing balance in the first line of the starting balance row. Write the amount in the first row of the account balance column. Writing the previous balance in the first row helps provide an orderly system, making it easy to follow the transaction records from the time you begin recording.
2. Document revenue and expenses
Fill in the table with revenue and expenses, using one row per transaction. Write the amounts of revenue and expenses into the table one at a time. If the first item in the table is revenue, add the amount to the account balance and document the new account total. If the second item in the table is an expense, subtract the amount from the account balance of the previous line. Document the new account balance in the table.
3. Calculate the ending balance
After adding and subtracting all revenue and expenses, you can calculate the ending balance for the accounting period, which can be weekly or annually. Fill in the ending balance row with the amount you’ve calculated. Remember to double-check the values you’ve recorded to ensure accurate recording.
Example of single-entry bookkeeping
Review the following example table in single-entry accounting: