Types of Bookkeeping System
Bookkeeping is concerned with the systematic recording of the financial transaction of the business. Bookkeepers traditionally performed their routine tasks using one of the two systems. Accountants and bookkeepers use this system for manually computing the company books and presenting the financial performance per the rules and regulations. These two systems are the single-entry system and the double-entry system. There still exist, but digitalization has improvised the way of doing bookkeeping functions over the computer using online software tools and accounting software. Automation, bookkeeping, software, and technology in accounting also depend on one or many systems to track the financial data.
Before understanding the types of bookkeeping. Let’s discuss the type of bookkeeping accounts.
Types of Bookkeeping accounts:
The basic type of bookkeeping accounts include:
- Cash.
- Sales.
- Purchases.
- Loan payable.
- Accounts receivable.
- Inventory.
- Payroll Expenses.
- Owner’s Equity.
- Retained earnings.
A bookkeeper performs the daily task of passing entries affecting these accounts and their effect on the different financial statements.
Opting for the right kind of bookkeeping method will require a proper understanding of how these works and whether it is apt for your business or not. Let’s understand here.
Types of Bookkeeping
The two most common methods for bookkeeping:
1.Single-Entry System:
The single-entry bookkeeping system is ideal for small businesses having less or not so complicated transactions. Under this system, only a single entry is recorded for each financial transaction. It usually maintains the daily record of cash receipts, sales, cash disbursements, sales, and purchases. For example, an entry for cash sales will show only an increase in cash receipts. There is no corresponding entry for sales. All the transactions related to inventory equipment, capital, etc., are presented either as notes or memorandums.
It is simple and easy to maintain small businesses use to keep track of their accounts on the budget. It doesn’t require hiring or outsourcing partners can be prepared using excel or by manual calculation. However, it is incomplete and full of errors. And it is not an acceptable way of recording for taxation purposes.
2. Double-entry System:
Businesses, accountants, and bookkeepers generally follow a double-entry bookkeeping system. It ensures complete and accurate recording of the financial transaction of the business. There are two aspects of recording transaction debit and credit which means for every transaction for something received (debit) and something given up (credit). Such a transaction affects two or more accounts.
There are some rules of accounting and principles a bookkeeper has to follow while using a double bookkeeping system. It ensures accuracy and complete recording of the financial data of the business. It helps to track the financial performance of the business.
Two methods revolutionized the bookkeeping system.
1.Computerized software:
Online bookkeeping or computerized bookkeeping systems have emerged and redefined bookkeeping tasks. There are a plethora of computerized bookkeeping systems available in the market. This bookkeeping software helps small businesses to track all their accounts with a user-friendly interface. You don’t need customized services. A basic accounting system will work for them. However, large businesses using computerized software will require the assistance of a bookkeeper. It makes requires a customized solution for unique business needs. Virtual bookkeeping has led to automation, real-time recording of receivables and payables, and speedy processing of transactions to ensure accuracy and effectiveness.
2. Virtual Bookkeeping:
It is an online bookkeeping and accounting service provided by professional and experienced experts in the accounting field. It caters to both single-entry and double-entry bookkeeping systems and manages all from simple to complex financial transactions. Most businesses outsource their bookkeeping to these professional accountants and bookkeepers. They provide a customized solution to the client according to the business needs. Outsourcing online bookkeeping services are affordable and save your time. They use the latest technology and cloud accounting software such as QuickBooks, Wave, MYOB, Xero, and many more. Apart from these, they also provide taxation and advisory functions.
Let Meru Accounting manage your bookkeeping
Contact us now.
