Every business that hopes to stay organized and track the money entering and leaving the company needs to record its transactions. This is called bookkeeping and keeps track of assets, revenue, expenses, and other monetary components. There are two different methods used by which the books are balanced. These are known as double entry bookkeeping and single entry bookkeeping.

When using the double entry method of bookkeeping, two or more financial accounts are affected simultaneously by the same transaction. As the double entry bookkeeping method has evolved, it has become mainly a series of credits and debits. All of the credits related to one account are added together as are the debits from another account. A comparison is made of the two sums. If the negative sum equals the positive sum, then the books are balanced. Because two figures are compared, it helps to discover errors and discrepancies.

Each transaction in double entry bookkeeping has the equal and opposite effect from one account to another. To keep things straight, a positive sign is given to credits and a negative sign is given to debits. One account will increase at the same rate the other decreases. As these transactions occur, they are recorded in books known as ledgers. Each account for the business maintains its own ledger. As a result of entries being recorded in two separate ledgers, a sort of automatic proofreading process is taking place. As credit is being recorded in one ledger, a debit of the same amount is recorded in another. Entering this same number twice ensures that when all figures are tallied, the books will be balanced.

As you can see by just scratching the surface, double entry bookkeeping requires skill and training. What, then, about rather small businesses that don’t produce adequate numbers to necessitate a team of experienced bookkeepers? Single entry bookkeeping is the solution for small business owners who can get by with recording transactions on their own. Bear in mind that single entry bookkeeping only works for businesses that experience low volumes of transactions because it records only the essential accounting information such as cash, accounts receivable, accounts payable, and taxes. Single entry bookkeeping is beneficial, though, because of how much cheaper it is to maintain.

In today’s world, double entry bookkeeping is the method almost all businesses practice. Smaller businesses that don’t need to keep track of all those numbers use single entry bookkeeping. Whichever method is used, it is a necessary component of any successful and organized business.

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