Companies, whether large, medium, or small scale, make a lot of financial transactions within a certain period of time. Due to the influx of these transactions, it needs to keep track its flow of money. Accurate tracking is important since this will be the basis for financial statements. The financial statements determine whether the company is financially stable or not.
The activity of tracking, documenting, and monitoring these important transactions is called bookkeeping. Bookkeeping is essential to all companies. In this financial, bookkeepers keep records, or books, of what the company sold, bought, owed, owned, and saved.
Each company adopts a system of bookkeeping suited to their needs. Large and medium scale businesses typically use the double-entry bookkeeping system. For small-scale businesses and home businesses, or for those owners who don’t have formal accounting training but opt to do the accounting themselves, single-entry bookkeeping works just fine.
Single-entry bookkeeping is a one-sided accounting and bookkeeping entry used to maintain financial information. Its primary record is the revenue and expense journal. This journal is almost the same with a checking account register. However, it apportions the income and expenses to various income and expense accounts. Different records are made for petty cash, accounts payable and receivable, inventories, travel expenses, and other accounts.
In single-entry bookkeeping, only the bare-essential accounts are recorded. In fact, the some accounts such as records of assets, inventory, revenues, and other elements considered essential in double-entry bookkeeping, may not be kept.
For small businesses, single-entry bookkeeping is preferred because of its simplicity. It is the ideal system for simple operations and low activity. Furthermore, it does not require a formally trained person to use this system. In this manner, the owner saves money by doing the bookkeeping himself rather than pay a professional bookkeeper to do the job for him.
Because single-entry bookkeeping is limited, there are some advantages in using the system. For example, the lack of accounting data may not be sufficient to be used as a basis for business analysis.
Also, in single-entry bookkeeping system, there is a risk of discrepancies because it does not provide a method to check clerical error. The lack of precise bookkeeping can lead to inefficient administration and reduced control of the business.
As mentioned before, single-bookkeeping system rarely records other important—especially internal—transactions. In addition, since there are no accounts that are provided for these other transactions, other important data may be missed out.