Accounting / Bookkeeping Basics: Single and Double Entry Bookkeeping System

The single entry bookkeeping and the double-entry bookkeeping are the two major kinds of bookkeeping commonly used in the world today. We are going to discuss in detail the two significant types of bookkeeping including the differences, advantages and the disadvantages of the systems.

Single Entry Bookkeeping System
The history of single entry bookkeeping is sketchy because it has been around for a very long time and scientists can trace its origin as far back as 200 BC. Traders in history had adopted this method of accounting because of its ease in keeping records of simple sales.
The single entry bookkeeping system is suited for small scale businesses that want to keep things simple by recording everything with just a single account. Records and reports of cash spent, receipts of cash, purchase made and sales are reported in this single account system.
In this type of bookkeeping system, just one account will be affected as the bookkeeper records all daily, monthly and yearly cash transactions. This kind of system proves difficult for an accountant to analyze the records of such accounts because it is only a single accounting of all transactions made.
The single entry system is not as complex as the double entry system and does not require the expertise of an accountant. Anyone with little or no experience in accounting whatsoever can operate the single entry system where you are only required to fill out all the transactions in a single manner.
The single entry method is most suitable for small businesses, where only completed transactions are recorded. What we mean by this is  that only effected transactions are recorded. For example, a cash transaction will be recorded in the cash account when the money and goods or products have exchanged hands and the business is complete. Assets and liabilities are not taken into account with the single entry method, unlike we do in double entry accounting.
In the case of the business getting a loan, the single entry bookkeeping will record it as cash coming in. However, it becomes difficult to register the interest from the loan. So much information cannot be acquired from single entry bookkeeping. It is a difficult task when an accountant decides to transfer data in a single entry book to a double entry book.

Advantages of Single Entry Bookkeeping
Although single entry bookkeeping does not give out more detailed information than the double-entry bookkeeping, it has its positive side.
Here is a list of some of the advantages of using single entry bookkeeping:
-         It is easy to operate and anyone without knowledge of accounting can operate it. This makes it suitable for businesses that cannot afford the services of professional accountants.
-         It is easy to understand and interpret by anyone looking at the business books.
-         There is no need for complicated accounting software to operate the single entry bookkeeping method. All transactions can be done manually by inputting figures in the correct column.

Disadvantages of Single Entry Bookkeeping
The single entry bookkeeping may be simple, but it has so many disadvantages when being compared with the double entry system. The disadvantages are listed below:
-         You cannot use this method of accounting for public companies that have to publish a statement of account. The information will be inadequate and one cannot access all the financial transactions of the company.
-         You do not have records of assets and liabilities of the company, which make the book inadequate for proper accounting.
-         With a single entry system, it is difficult to check for errors, unlike the double entry system, which has various tools you can use to check for errors.
-         The single entry system does not support accrual accounting,  which makes it impossible to analyze other transactions, such as supplies, payment of debts and so on.
-         One cannot obtain an audited financial report from this kind of accounting.
-         You cannot use it to seek a loan or other financial support.
-         It is easy to carry out fraud with the single entry system as one can easily alter figures to tally with the total.
The choice of which of the methods of bookkeeping to use lies solely on the business owners as they have their specific advantages and disadvantages.

Double Entry Bookkeeping System
This kind of system is used both by accountants and bookkeepers with complete and well-organized details of transactions in the company. The double entry bookkeeping method is used by big companies and organizations to record their complex transactions.
You can use this account to attract investors or apply for a loan as it gives a potential lender a clue as to the performance of the company. It is easier for an accountant to make use of this system to analyze the prospects of the company.

The double entry bookkeeping system uses an accounting principle in its operations, taking into account the liabilities of the company with the capital as assets of the company. This system is based on the two fold principles, which makes us understand that as long as there is something taken which is regarded as debt, we are getting something back, which is regarded as credit. In business, it is expected that when you obtain capital, you intend to use that capital to gain some resources for the set period - one of the principles of double entry bookkeeping.
An accountant must be able to identify which one of the elements is affected in any business transaction and to record these transactions appropriately.
The double entry method is not perfect in all areas as one may prefer to use the single entry method in some instances. There is never a  perfect system and thus we have systems that have been modified from time to time to meet up with our demand for a system that will meet our individual requirements.

Advantages of Double Entry Systems
-         There is a deep understanding of the financial transactions of the company that is represented effectively.
-         With this system, you can keep a record of all transactions that exist in the company for it to make room for all elements.
-         There are more accurate records using this method.
-         You can easily analyze different periods within a transaction with this method when you want to compare and analyze different periods of time.
-         The profit and loss of the company can be determined fast and easily using this system.
-         You can get every transaction detailed easily with this kind of method.

Disadvantages of Double Entry Method
-         The double entry method is not easy to assimilate, especially as a beginner. It is very complex to use; it takes time to understand and get used to working with.
-         It is expensive to use this method in organizations.
-         It is time-consuming in detailing all financial transactions in the organization.