What are the difference between single entry and double entry bookkeeping Why is the double entry system used
Single entry and double entry bookkeeping are two methods of recording financial transactions in a company's accounting system.
1. Single Entry Bookkeeping:
- In single entry bookkeeping, only one entry is made for each transaction, typically recording only the cash inflow or outflow.
- This method is simpler and often used by small businesses or individuals who have less complex financial transactions.
- Single entry bookkeeping does not provide a complete and accurate picture of a company's financial position.
2. Double Entry Bookkeeping:
- In double entry bookkeeping, every transaction is recorded twice - once as a debit and once as a credit.
- This method follows the fundamental accounting equation of Assets = Liabilities + Equity, ensuring that the accounting equation always stays in balance.
- Double entry bookkeeping provides a more accurate and comprehensive view of a company's financial position, as it captures both the impact on assets and the related liabilities or equity.
- It also allows for greater accuracy in tracking and managing financial information, making it easier to identify errors or discrepancies in the accounts.
The double entry bookkeeping system is used widely because of its accuracy, completeness, and ability to provide a clear and comprehensive view of a company's financial transactions and position. It is considered a best practice in accounting and is required by law in many jurisdictions for businesses to maintain their financial records using this method.