As an owner of a recently started business venture, knowledge on the different types of bookkeeping systems will be able to help you in deciding the type of bookkeeping system that you could choose for your business transactions. You could also get information related to the different methods of book keeping being adopted globally. There are actually two types of book keeping systems namely Single Entry Bookkeeping systems and Double Entry Bookkeeping systems.
Single entry bookkeeping systems. If the type of Business that you have just started falls under the small scale category, single entry book keeping system would be very useful. This type of system maintains a record of the business transactions related to cash disbursement, cash receipt, purchases and sales. This type of system is more of an informal system suitable for small business transactions. The bookkeeper will usually use this system to maintain a daily summary of the cash receipts and cash payments and also a monthly summary of the cash receipts and payments. In a single entry book keeping procedure, every transaction will affect only one account. In the case of a double entry transaction, each and every transaction would have an entry on both the accounts.
If there is a sale of a particular item, the cash receipt or cash deposit account only be updated with the amount received. The corresponding entry in a sales account will not be made in single entry bookkeeping system.
Hence it doesn’t provide the complete financial standing of the various systems in the business. If you want a detailed accounting of the different systems involved in business transactions, you could opt for a double entry system.
Double entry bookkeeping system. This is the type of system that is most commonly used by the bookkeeper or an accountant in any business organization. This system is used by the bookkeeper to keep complete accounting details of the business transactions. This system also introduces the concept of debit and credit. As there are many accounting systems in a business, a debit entry in one of the accounting system will usually be accompanied by a credit entry in another accounting system or in more than one accounting system. Similarly, a bookkeeper might be required to make more than one debit entry for a single credit entry. The financial performance of a company can be clearly ascertained based on the accounting details obtained from the double entry accounting systems.
Basically, there are two methods of book keeping. One is the manual method of bookkeeping and the other is the computerised method of bookkeeping.
Manual bookkeeping is the oldest form of bookkeeping where in the bookkeeper will be using a journal book or a ledger book to record the different accounting entries related to the business transactions. Small business owners still prefer manual method of bookkeeping as it is economical and is suitable for maintaining less complex business transactions.
Computerised bookkeeping helps the bookkeeper to perform bookkeeping of complex business transactions in a much easier and faster manner. An accounting software system is usually used to do the accounting entries. The advantage this system has over the manual bookkeeping system is in the ease of generating reports and performing calculations. Complex calculations can be performed accurately and quickly.