Double Entry Vs.The Single Entry which one prefers the business world?
When you start your own business whether it is small or an entity business you might be appointed an accountant or you will maintain your daily transactions in an account. First, you have to decide what accounts system you may follow? Either it will be single entry or Double entry system in your accounts.
Whatever, you have to keep the detailed accounting of your business financial transactions and this process is called bookkeeping. The endurance of business is depended on owner’s capability to ensure good accounting practices.
What is Single Entry?
Single entry bookkeeping is going to be worked when you run a small enterprise. Its transaction is small, simple and not so much transaction in the record. This type of accounting is so large and complex. This system of bookkeeping does not use like inventory, accounts payable, and accounts receivable accounts.
Single entry feature as every transaction only one entry is made in transactions in record books. It seemed to be a cash register. Single entries draw in positive or negative for one column. In this system, an entity maintains ledger accounts which have two columns but one column each for revenue and expenses accounts.
How does it work?
It is actually like a personal check and cash records. It is maintained cash, check, income, expenses, tax and tax deductions.
Single entry calculates net income of accounts but it does not calculate balance sheet to calculate assets and liabilities accounts which are maintained double entry bookkeeping. The reason is why single entry does not calculate reconciliation accounts and Due to this reason, fraud and errors of accounts are not figure it out and possibly it will maximum. For this reason, it does not accord with Generally Accepted Accounting Principles (GAAP).
What is Double Entry?
In the business world, Double entry accounting is the most popular method which is used small business and other business entity. There has two feature of double entry accounting, one is every transaction has two sides one is debit and other is credit. The second feature is transaction has made two accounts. This system of bookkeeping is used like as inventory, accounts payable and accounts receivable accounts.
If you want to practice accounting in your business you can keep double entry intend of single entry accounting. Double entry accounting traces your correct financial position in the balance sheet and also calculate accurate profit and loss account in the complex business. On the other hand, double entry accountings prevent fraud and make errorless accounts. And it will make sure company’s real position from the financial statement.
How does it work?
Every transaction has required and corresponding opposite entries. The transaction has action in accounts two times. On the other hand, the transaction has two sides one is debit and other is credit.
Here is the key formula is given below:
For example, Alex purchases equipment by cash amount is $500for his business.
Purchase (equipment) Dr.500
Here Alex purchases equipment by cash amount. Equipment increased and Cash decreased.
A=500-500=0; L=0; P=0. Double entry accounting is accepted by all. So that reasons it is accord with Generally Accepted Accounting Principles (GAAP).
Differences between Single entries Vs. Double entries system
- In single entry system transaction has recorded either debit or credit. In the double entry accounting system, every transaction has two effects of accounts and it requires and corresponding others entries.
- Single Entry is the simple and small transaction which is easy, on the other hand, Double Entry System is figuring out complex as well as it requires experts for maintaining records.
- In single entry system, records are not completed and accurate while in the double entry system transaction is accurate and completed.
- In double entry system, we can easily compare two accounting periods. Conversely, in single entry system, a period of accounting comparison is so hard.
- Single Entry System maintains personal cash and small entity accounts. On the other hand, in Double Entry System are keeps personal, real and nominal and also uses in small business and large organizations accounts.
- The Single Entry system is best for personal and small entities, but most of the small and big organizations are maintained Double Entry System.
- Frauds and theft are easily figured out in double entry system; on the other hand, single entry system is not preventing frauds and thefts.
In the above, we can decide double entry system is the more effective method to record accounts intends of single entry accounts. In the present days, double entry is most popular, more expectable and most effectively uses in organizations. It is expectable to all accounting firms and Generally Accepted Accounting Principles (GAAP) is certified double entry accounts intend of single entry accounts to maintain accounts in all organizations.