Types of Bookkeeping Systems

types of bookkeeping system

Learning the types of bookkeeping systems is essential in identifying which one to adopt and use in keeping the records of business transactions. By studying the different types of bookkeeping systems, you will be able to determine the most appropriate to the business or client that you serve.

In this article, you will be introduced to single-entry bookkeeping, double-entry bookkeeping, manual bookkeeping and computerized bookkeeping. Additionally, you will also learn the available tools on computerized bookkeeping.

Types of Bookkeeping Systems

There are two types of bookkeeping systems used in recording business transactions: single-entry bookkeeping system and double-entry bookkeeping system.

1. Single-Entry Bookkeeping System

Single-entry Bookkeeping System is commonly used for small businesses with very little or minimal transactions. It is often referred to as simple, practical and informal way of recording. Usually, it only maintains a record of cash disbursement, cash receipts, sales and purchases. All the rest of the accounting records, such as inventory, equipment, capital, etc., are only recorded in the form of memorandum or notes.

The books or records maintained in a single-entry bookkeeping system are daily summary of cash receipts, as well as monthly summary of cash receipts and disbursements, which represents the revenue and expense, respectively.

Unlike the double-entry bookkeeping system wherein one transaction affects two accounts, in single-entry bookkeeping system, a transaction only affects one account. Example, a cash sale is recorded only as increase in cash receipts or deposits with no corresponding sales account.

However, the simplicity of single-entry bookkeeping system is prone to error and incompleteness because it lacks a detailed recording system compared to double-entry bookkeeping system. Although for tax purposes, it is an acceptable method of record keeping for small and simple businesses, however, it may not provide a fair valuation of the relevant financial information of a business.

2. Double-Entry Bookkeeping System

Double-Entry Bookkeeping System is the standard method of record keeping normally used by most businesses, bookkeepers and accountants.

The procedure of double-entry bookkeeping system is more detailed and complex than single-entry bookkeeping system. It introduces the concept of debit and credit, which means that for every transaction there is something received (debit) and given up (credit), as such, recorded transaction affects two or more accounts.

The benefit of double-entry bookkeeping system is that it has a process to ensure accurate and complete recording of business transactions. It is a reliable source of financial information and fair valuation the condition or performance of a business.

Our topic on bookkeeping will be based on double-entry method system, you will learn more about it in the next articles.

 Methods of Bookkeeping

After learning the two types of bookkeeping system, let’s now discuss the two methods of bookkeeping which are: manual and computerized.

1. Manual Bookkeeping

Manual bookkeeping is the paper-based and traditional way of bookkeeping. Business transactions are recorded manually by hand using manual or paper book of accounts, such as journals books, ledger books and worksheets.

This method of bookkeeping is still widely used especially by small businesses with less complex transactions. Many opt to manual bookkeeping because it is cheaper and easier to maintain. However, the recording process is more tedious than computerized bookkeeping.

2. Computerized Bookkeeping

Computerized bookkeeping is the new and innovative way of recording business transactions. With the use of accounting and bookkeeping software, the bookkeeping process has been made easier, faster and more convenient.

Keep in mind that principles and concepts of traditional bookkeeping process are still implemented and followed in computerized bookkeeping. It only eliminated the tedious tasks involved in manual bookkeeping, thus, it made recording and reporting of business transaction a lot faster and easier.

Some small businesses do not use computerized bookkeeping because it is more expensive than manual system, and because they don’t want to go through the technical training involved in computerized bookkeeping. However, most businesses use computerized because of convenience, reliability and efficiency.

 Sample Accounting and Bookkeeping Software Used in Computerized Bookkeeping

1. QuickBooks Pro 2012

QuickBooks is one of the best selling small business accounting software.  This software will enable you organize your business finances all in one place, easily create invoices and track sales and expenses, quickly import your data from a spreadsheet, get a real time snapshot of your business with Company Snapshot.  QuickBooks can be set up in minutes, easy to learn and use. Read more here.

2. Sage Peachtree Premium Accounting 2012

Sage Peachtree Premium Accounting 2012 is an easy-to-use solution that helps you manage day-to-day accounting while also providing tools to support your strategic growth plans. It enables fast start-up, check writing, invoicing, purchasing, bank reconciliation, project tracking, company consolidation, advanced budgeting, serialized inventory, the ability to archive company data, custom reports, and more. It offers user-friendly tools and multiple help options to get you up and running quickly. Read more here.

3. MYOB Accountedge 2009

MYOB AccountEdge lets you manage your small business on your Mac, iPhone, and iPad. Integrate with Checkout Point of Sale, web store Enstore, and more. It designed to work for everybody, provides coverage for all of your accounting necessities, offers the most complete, easy to use accounting solution, and complete end-to-end business solution.  Read more here.

I hope this article has been helpful for you to learn and understand bookkeeping. You may share your thoughts, additional knowledge, questions or concerns via comment box below.

Comments

  1. Great post Lou! I hope this will help business people understand how important accounting is in managing there businesses. By the way could you write a topic how a CPA can practice his/her profession publicly? I am a CPA as well and yet has been working in private sector for the past 4-6 years. It would be great if most CPAs in the Philipppines are running their own practice… hope you can guide us towards that realization.

    Thanks!

  2. Bravo guy. More of dat

  3. It was nice reading this article. Never boring rather descriptive and self elaborative.

  4. Ly'Neys Hill says:

    I’ve run into an auditing question that I hope you could help me with. It’s applying invoices together in AR to increase/decrease an invoice that is going to the client. When this happens the AR report shows the application as a payment towards the client invoice it is being applied to and increases that client invoice while the original invoice drops off the report as paid. Is this GAAP compliant? Cash receipts are zeroed out because no payment is being received by the client at this time.

  5. joseph john nshashi says:

    this principles is good because have trained accountant in how to run their business,also i want to know how can join with CPA to graduate of diploma in business administration, answer by using my e-mail thanks

  6. Really helped with my accounting project

  7. I enjoyed reading the article. There is also a new software but not new as such called tally, most entity have not embraced it. Suggestion could you please research on it and I will be glad to read about it

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