You’ve heard the saying ‘there are two kinds of people in the world’, but have you heard there are two kinds of bookkeeping? Less of a saying, more like a fact. In this blog, we’re covering the two kinds of bookkeeping for your business and whether manual or computerised bookkeeping is the way to go.
Let’s Define Bookkeeping
Before we explore the two systems at your disposal, let’s take a moment to define bookkeeping. Bookkeeping is the recording of a company’s financial transactions. Ideally, it occurs each day – but as long as it’s frequent and accurate, the timing is flexible. Some of the purposes of bookkeeping are; to provide a snapshot of business performance, track revenue, set income goals and understand cashflow. With that in mind, we can look to the two kinds of bookkeeping.
Single Entry Bookkeeping System
The first kind of bookkeeping is the single-entry system. This is the original system that dates back to the beginnings of bookkeeping. It’s called single-entry because it tracks one single thing: cash in and out of your business. Because of its simplicity, some brand new businesses start with a single-entry system. It can be run without much financial or accounting knowledge and in readily available programs like Excel. This system is only appropriate for as long as a business maintains minimal, simple transactions.
Double Entry Bookkeeping System
The second kind of bookkeeping is the double-entry system. This is the most common method with cloud accounting software such as Xero making it easily accessible to every business. The name double-entry comes from the fact each transaction will be recorded twice. Why? Because financial transactions don’t happen alone. For example; when you spend money, you gain goods or services, and when you sell inventory, you gain income. The double-entry system is designed to track both sides of a transaction – the debit and the credit.
The key benefit to the double-entry system is how easy it is to run financial reports and do comparisons. It’s also the system which banks and investors trust to provide accurate business performance data if you apply for a loan or seek investments.
Manual vs. Computerised Bookkeeping: Which is better?
If we reverse the term bookkeeping, we get keeping books – which is the manual method. It quite literally means to record your business transactions in a ledger or journal. You can do both single-entry or double-entry bookkeeping manually; but to be honest, it’s unnecessarily time consuming.
Thanks to cloud accounting software, business owners and bookkeepers can manage the double-entry system quickly and simply. Computerised bookkeeping is the most popular in 2022 and it’s here to stay.
Your bookkeeping, your way with Blue Wave Solutions
Whether you prefer to manage your own books or outsource the task; Blue Wave Solutions can help. For self-sufficient bookkeepers – our Xero Training teaches you how to set up your system and make the most of cloud accounting. For the ones who’d rather avoid their books – our Bookkeeping Services help you get back to the work you love. We work with businesses across New Zealand; from our home-base in Mangawhai to the main city of Auckland. Ready to get started? Send us a message and we’ll be in touch.