Basic Accounting: Single-Entry and Double-Entry Methods
The term accounting is indeed quite familiar to the ear, both those who still have an education bench to those who have become experts in their respective fields. Accounting is an area that deals with the process of financial data and its supporters such as searching, collecting, recording, analyzing, interpreting, reporting and even making policies related to financial data from those who need it.
Businesses engaged in any field certainly require the name accounting. Because of the importance of this field so that every business owner is required to master. At least a business owner must have basic accounting knowledge. Because basic accounting is a reference to make it easier to learn to account further. In addition to understanding, principles, and concepts, other basic accounting matters that need to be known are other methods of recording financial transactions. You can also hire an accountant with qualified skills at https://lokalerevisorer.dk to handle the accounting field in your business.
There are at least two methods that are often used, namely single-entry and double-entry. For more details, can be read in the following explanation.
The difference is Single-Entry and Double-Entry
Both single-entry and double-entry are the two basic ways used in recording financial transactions in accounting. Each has the following meaning.
- Single-Entry or can be interpreted as a Single Record is a method of recording financial transactions that are only done once. In the single-entry method, only the transaction list that affects the cash account is recorded, which means that cash receipts will be recorded as cash in and cash payments will be recorded as cash out. The single-entry method is usually used by small businesses where the balance sheet is not required for financial control and tax purposes.
- Double-Entry or Double Recording is a method of recording financial transactions carried out twice namely on the debit and credit sides. The double-entry method is required for all businesses that must produce an income statement and balance sheet.
For a business to decide whether to use the single-entry or double-entry method depending on the type of business being run. Initially, single entry was used as the basis for bookkeeping. This is reasonable because using a single-entry is much easier and more practical. However, due to the high demand for good public governance, the change in the recording system to double entry needs to be implemented because with this recording system a complete and auditable financial report can be produced.
Small businesses with sole ownership or home-based businesses may not need a double-entry method to record financial transactions. And usually, small business owners don’t start their business with this method. It is easier for them to use the single-entry method by simply adding cash in and reducing cash out.
Meanwhile, if a business that is run has several receivables or debts, it is necessary to consider using a double-entry system. In the double-entry method, each transaction is recorded into two accounts: debit and credit. Each transaction must balance each other. Regarding these two accounts, it should be noted that debit does not always increase, and credit does not always mean less.
Single-Entry Advantages and Disadvantages
The main point of the advantages of using single-entry is simple so that its use is easier and more practical. This method only has two lists, namely income and expenses. However, this simple format makes the results of the report incomplete. So, it is difficult to control every transaction that occurs. In addition, if an error occurs it will be difficult to find the location and origins of the error.
Double-Entry Advantages and Disadvantages
Most medium and large businesses use the double-entry method that tracks income, expenses as well as assets and liabilities. The double-entry method is required for all businesses that are required to produce a statement of assets and liabilities (balance sheet). With a recording system such as making calculations performed more accurately because it shows all account balances. With the clarity of this information, errors can be traced. But if you already use the double-entry method, the error that occurs is very small. The error that may occur is human error.
Clearly recorded data, of course, save the complexity behind it. The bookkeeping process is indeed quite complicated because it has to balance between debit and credit. Of course, not everyone can do this so additional human resources and additional costs are needed to do this. The time needed will also be more because it needs verification repeatedly, especially if there is a very confusing human error.