![]() Double-entry bookkeepingĭouble-entry bookkeeping is more robust. It follows the principle that every transaction affects at least two accounts, and they are recorded as debits and credits. For example, if you make a sale for $10, your cash account will be debited for $10 and your sales account will be credited by the same amount. In the double-entry system, the total credits must always equal the total debits. When this happens, your books are “balanced.” ![]() Single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books. These transactions are usually maintained in a cash book to track incoming revenue and outgoing expenses. You do not need formal accounting training for the single-entry system. The single-entry method will suit small private companies and sole proprietorships that do not buy or sell on credit, own little to no physical assets, and hold small amounts of inventory. With this in mind, let’s break these methods down so you can find the right one for your business. Methods of bookkeepingīefore you begin bookkeeping, your business must decide what method you are going to follow. When choosing, consider the volume of daily transactions your business has and the amount of revenue you earn. If you are a small business, a complex bookkeeping method designed for enterprises may cause unnecessary complications. Conversely, less robust methods of bookkeeping will not suffice for large corporations. This guide will walk you through the different methods of bookkeeping, how entries are recorded, and the major financial statements involved. It can also refer to the different recording techniques businesses can use. Bookkeeping is an essential part of your accounting process for a few reasons. When you keep transaction records updated, you can generate accurate financial reports that help measure business performance. Detailed records will also be handy in the event of a tax audit. ![]() ![]() Thus, the purpose of accounting centers on the collection and subsequent reporting of financial information.Reading Time: 7 minutes What is bookkeeping and why is it important?īookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. These are usually considered to be managerial reports, rather than the financial reports issued to outsiders. The accountant may generate additional reports for special purposes, such as determining the profit on sale of a product, or the revenues generated from a particular sales region. Thus, a European investor might want to see financial statements based on IFRS, while an American investor might want to see statements that comply with GAAP. The framework that a business uses depends upon which one the recipient of the financial statements wants. The results shown in financial statements can vary somewhat, depending on the framework used. Financial statements are assembled under certain sets of rules, known as accounting frameworks, of which the best known are Generally Accepted Accounting Principles ( GAAP) and International Financial Reporting Standards ( IFRS).
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