Single-Entry Bookkeeping System
Single-entry bookkeeping is the simplest form of bookkeeping and may be adequate for small businesses that do not need precise financial records. It is an informal system that records only cash flow - incoming and outgoing, and is often done on paper in a ledger; however, it can also be done electronically. A single-entry bookkeeping system is essentially just a “checkbook register”, which records only revenue and expenditure transactions as they occur, instead of recording the offsetting actions as occurs with a double-entry bookkeeping system.
The single-entry system does not record debits and credits as does double-entry bookkeeping, but rather is a record of disbursements and receipts on a cash basis. This system is too simple to provide an idea of the extent to which an enterprise is solvent or has a profit or a loss accumulated at any time. The total of the latest cash receipts and payments added to the opening balance of cash is the closing balance of cash. This is the furthest extent of the information provided by a single-entry bookkeeping system.
A single-entry bookkeeping system makes it easier for business owners to manually (or with the help of software) track different accounts related to business revenues, expenses and cash flows. For example, some businesses may use cash to purchase goods necessary for specific projects. They are able to track how much cash they used in purchasing these goods and the balance of cash left in the bank.
Under the single-entry system, transactions are recorded only once; transactions are not divided into debit and credit accounts, and it does not provide current information of the financial position of a business. In addition, existing sales and purchases may be recorded, however, such systems are not satisfactory when it comes to debtors or creditors. In particular, the system does not record the value of debtors or creditors separately, so a business may not be able to accurately determine if they are making a profit or loss.
Although the single-entry system is not suitable for a business of more than a very limited size, it is still useful for personal budgeting and recording of small one-off transactions. Furthermore cashflow forecasting can benefit from single-entry system, as it accurately captures all incoming and outgoing cash within the business.
Finally, the single-entry system is easy and inexpensive to implement. It requires the business to purchase a ledger, pen, and paper. It is the ideal bookkeeping system for small businesses with a minimal effort on their part.
In conclusion, single-entry bookkeeping is a simplified system of recording transactions with less effort and time than double-entry bookkeeping. It is ideal for small businesses that have minimal need for precise financial statements. However, it is not as accurate and does not provide the level of detail that a double-entry system does. Therefore, for medium and large businesses, a double-entry system, which is much more effective, is recommended.
