Bookkeeping is a critical practice regardless of the size of your business. It helps you keep track of all financial information essential in the decision-making process.
However, you may be unsure of the best bookkeeping method you can opt for your business. Read on to identify options you can consider based on your business size.
Single-entry bookkeeping is a method that tracks business assets, income, liability, and expenses. In this case, there is only one entry for each transaction. It includes the transaction date, description, value, and balance at the end of an accounting period.
This method is ideal for your small business due to its minimal and uncomplicated transactions. It is also an alternative if you have a startup to help you keep track of your business transactions.
Moreover, it is easy to maintain, so you may not have to hire extra personnel to carry out the job. You can also identify a loss or profit as it has less data which aids in decision-making.
Single-entry bookkeeping is similar to balancing your checkbook. In this case, you can calculate your business's net income and identify the financial position of your business at a given period. However, one of the single-entry bookkeeping method's limitations is that it does not allow you to track accounts like accounts payable, accounts receivable, and inventory.
This bookkeeping method is ideal if you have a medium or large business. It is also the standard method of record-keeping, and it is reliable for the decision-making process.
The double-entry bookkeeping method ensures accurate and complete recording of your business transactions. In this case, there is a corresponding credit for every debit transaction. It also reduces errors because the transactions on both sides have to balance.
You can also trace transactions and identify fraud. Specifically, double-entry involves recording each transaction in two accounts which prevents any scope of manipulation and forgery. Thus, you can quickly identify manipulated entries and correct them immediately in case of fraud.
However, it involves a more complex process than the single entry method. Thus, you should hire a bookkeeping professional to help you prepare the financial statements and track your business performance.
Tracking and managing business transactions is essential for your business growth. Based on the size of your business, you can adopt one of the above bookkeeping methods to help you track your finances. However, ensure you work with a qualified bookkeeper for the best result.