Double Entry Bookkeeping Versus Single Entry Bookkeeping

Bookkeeping stems from the recording of financialWhen a debtor pays his sales invoice the double entry
transactions and the accounting term for a businessis to add that amount of money to the business
accounts as books. In effect the accounting functionfinancial records and the opposite double entry goes to
prepares a record of the monetary affairs of athe debtor account to reduce the amount owed to the
business and stores the information in files calledbusiness since it has now received the cash.
books. Hence the term bookkeeping often misspelledWhen a creditor is paid the amount owed the money
as book keeping which is the function of a librarian notis recorded as reducing the cash resources of the
that of a bookkeeper.business by for example deducting the money from
The difference between bookkeeping services andthe bank balance and the double entry reduces the
accounting may be unclear to the uninitiated while bothamount the business now owes to the creditor
are of vital importance to financial success.account since it has reduced the credit received.
Bookkeeping is an important part of the accountingThe bookkeeping function is to record these prime
function and is essentially the record keeping of thetransactions. Since every financial transaction has an
financial transactions. Accounting is while incorporatingequal and opposite entry in the books there has to be
the record keeping also includes the presentation,a mathematical check that both sides of the
interpretation and financial control functions includingtransactions add up to zero. This check process is
interpretation of the numbers for the financial health ofcalled a trial balance where both sides of the entries
a business of which taxation can play a major part.should be in agreement and normally the point at which
The financial affairs of a business involve manythe bookkeeping service is deemed to be complete.
aspects and start with the recording of what is termedDouble entry bookkeeping is required for all businesses
the prime documents. The task of a bookkeepingthat require to produce a statement of its assets and
service is to record the prime documents, those primeliabilities. This statement of assets and liabilities is the
documents being the sales, purchases and cash/banktotal of all the balances from the trial balance and is
transactions. All small businesses do bookkeeping andcalled a balance sheet.
the most successful use the bookkeeping records asMany small businesses do not require a balance sheet.
a basis for an accounting function to generate a moreIn the UK the production of a balance sheet is optional
efficient financial service.for every self employed business as it is not an
All business involves buying or selling something andobligatory requirement of the self assessment tax
the consequent function of receiving or paying moneyreturn form. A self employed bookkeeping system is
to the value of those transactions. Recording thesenot required to produce a balance sheet because the
transactions in larger business organisations is done bybusiness effectively belongs to the owner and is that
accounts clerks who work under the supervision ofowners personal business.
the accountant.Limited companies must produce a balance sheet
Invariably medium and larger businesses use a doubleunder various financial acts and submit the balance
entry system for recording transactions. Double entrysheet to both Companies House and the tax authority
accounting evolves from the fact that everyeach year. The different rules applying to a limited
transaction as a double effect on the business ofcompany is because the accounts including the
which these are prime examples.balance sheet are public records available to the
A sale is made creating a record of income for themembers of that company and not necessarily the
business on which the business is taxed and the otherproperty of a single individual or partnership.
side of the financial transaction, the double entry, is theThe self employed bookkeeping system can be
organisation who was sold the goods now owes thesimpler being produced from a single entry style of
value of that sales invoice to the business. That is thebookkeeping rather than double entry. Single entry
double entry, record the sales income and also recordbookkeeping makes a single entry for each financial
the debt due from the customer.transaction which is sufficient to produce an income
Someone who owes the business a debt is called aand expenditure account, a profit and loss account, but
debtor.does not make the reciprocal entry that establishes
A purchase is made creating a record of expense forthe value of the assets and liabilities.
the business which can be deducted from income andSingle entry can be as simple as making a list of the
lowers taxes and the other side of the financialsales income and the purchase expenses. Such a
transaction, the double entry, is the organisation whobookkeeping system is valuable to the smaller
supplied the purchase on credit is now owed thebusiness as it requires little or no bookkeeping or
money. That is the double entry, record the purchaseaccounting knowledge. A smaller business can
and also record the credit due to the supplier.produce its own accounts without the need for a
Someone who has supplied goods on credit is called abookkeeper or accountant particularly if it has access
creditor.to bookkeeping templates through bookkeeping
The third type of prime transaction is the transfer ofsoftware to produce the accounts in the accounting
money between the debtors and creditors and theformat required.
business.