The accounting method used by most of the companies is double entry bookkeeping. To explore the benefits of double entry system it is important to understand the single entry bookkeeping. The single entry bookkeeping is similar like a checkbook register which have only single column each transaction. Single entry bookkeeping record positive and negative amount in one column as mentioned in the example below.
The above example clearly shows that each transaction value is maintained in the single column and after calculation the ending balance is the difference of revenues and expenses. The revenue and expense are recorded in single column which makes it difficult to segregate the accounts type and the final values of total expenses and revenues are also not calculated. The expense and revenue stream are important for mangers and without knowing these account total figure budgeting is not possible for company. In order to separately record revenues and expenses transactions an extra column is added as mentioned in the example below.
Although revenue and expense are recorded in different columns and ending balance is also available but still this method is called single entry bookkeeping. For each transaction only one entry is recorded, in double entry bookkeeping two entries are recorded for one transaction. The single entry can be expanded to show more useful information. For example, Company wants to view the information of different type of revenues such as sales, sales tax, services earning that will require adding three extra columns one for each type of revenue. Companies using this system will add dozen of columns to accommodate different type of expenses and revenues. There are few disadvantages of single entry bookkeeping.
Disadvantages of Single Entry Bookkeeping
• Errors may not be identified properly.
• Difficult to maintain complex accounts.
• Does not track assets and liability, these account must be track separately.
These are the reasons most of the companies are no more using single entry system, complex transaction can be well managed in the double entry system which is the most preferred accounting method used by majority of companies.