Like not every business is not the same, bookkeeping methods also vary. From daily transaction volume to revenue earned, there’s a lot that defines what system you should use. But before you make a choice, you should understand what all bookkeeping methods are available.
- Single-entry Bookkeeping: This is a straightforward approach where every transaction has an entry in the books. This is a good approach for small businesses that don’t have less inventory and no physical assets. A cashbook is used to record incoming and outgoing transactions.
- Double-entry Bookkeeping: In this approach, two accounts (debits and credits) are used to record every transaction. For example, a sale of $10 will be reflected in both debit and credit books. And both accounts need to be balanced for accurate bookkeeping.
Should You Go for Accrual- or Cash-based Bookkeeping?
The difference in the two approaches relates to when and what a business recognizes as expense and revenue.
For cash-based, revenue is considered when cash is received and expense is considered when cash is given. Any credit used to make a transaction will go in the books only after the cash exchange takes place. In short, cash-based bookkeeping records all the cash transactions for a business.
The accrual method recognizes the revenue when it is earned and expense is considered when incurred. Sales and purchases are marked with credits while the actual cash isn’t required to flow through the accounts.
For the best approach, you need to find the right match between single or double entry and cash or accrual methods. You can find a professional tax accountant from Toongabbie to get the best results for your business.
