Double or Single Entry?

Most businesses use a "double entry" system for their bookkeeping. This means that every financial transaction touches at least two accounts.

For example, if your customer pays an invoice, income increases, and accounts receivable decreases. Or if you buy copy paper for the office, your cash goes down, and expenses go up.

Some small businesses may use single-entry bookkeeping. This is just a list of transactions and a running total. Think checkbook register.

However, the double-entry system is better in most cases. One reason is that it is much easier to catch any mistakes that may have been made. Since there are two sides, each side must balance out. Hence the term "balancing your books". If something doesn't balance, you know there is a mistake.

Another reason is for reporting purposes. You will get a much clearer picture of what is happening with your money. The double-entry system helps you build the big 3 (Balance Sheet, P & L, Statement of Cash Flow). These are the main reports you will use to make solid business decisions. Without these reports, you may miss out on beneficial financial opportunities.

Not sure which system is best for you? Talk to your tax preparer. They will be able to guide you.