The Advantages and Disadvantages of Single-entry Bookkeeping

Apart from the double-entry bookkeeping method that most business would use, there is another method that business owners can use to trace the finances of their business, that is, the single-entry bookkeeping system. For companies that choose to use this method, they will only need to record one entry for every transaction. Most of the entries will record either the inflow or outflow of funds.

By using the sing-entry bookkeeping, business owners need to record the transactions in a journal called cash book. It has columns that helps one to organise the details of the transactions based on the dates, types (whether that is an income or an expense), as well as the descriptions related to that transaction. Business owners who use the single-entry bookkeeping method can choose whether they want to record the transactions by using a table or accounting (Also see How Do the Accountants Close the Books?) software.

One of the most significant advantages of using the single-entry bookkeeping method is this system is easy to understand and implement. This method is suitable for business owners who are not familiar in accounting (Also see Which Ledger Accounts Will Normally Have Debit Balances?) or for companies that are unable to afford the cost of employing in-house accountants or a bookkeeping firm in Singapore. By using this method, one does not need to use any complex accounting software. They will only need a simple program or a spreadsheet.

Also, if you have just started running a business and it does not have many business activities, you can get all you need by using the single-entry bookkeeping system. This system can generate the income statement for your company which shows you the profitability of your business in a period. This document is very important for you to understand your business’s financial position so that you can make necessary adjustments based on the situation. The focus of this system is to generate the income statement that equips the business owners with the information they need to run their business.

Even though the single-entry bookkeeping system is easy and more user-friendly for most business owners, it brings some disadvantages too. This system does not include inventories, accounts payable, as well as accounts receivable accounts. Thus, companies that choose this system are unable to produce a balance sheet.

Besides, it is more difficult for business owners to trace the assets (Also see Accounting for Intangible Asset) and liabilities of their business if they use the single-entry bookkeeping system. For larger companies that own a lot of machines, equipment or property, this can be a serious issue. Also, tracing the effect of liabilities (Also see Can You Differentiate Debt and Liability?) on the financials of the business will be more difficult if a company uses the single-entry bookkeeping system.

In short, the single-entry bookkeeping system will not be able to provide business owners with the full picture of their company’s financial health. Companies that often purchase or sell goods or services on credit will found out that this system is unable to meet their needs too. In this case, the double-entry bookkeeping system will be more suitable as it can match revenues with their respective expenses.