Magazine

NOMINATE CONTENT

READ NOW

last update Wednesday, May 03, 2017
  

 



tags
 
#  #  #




Most of financial accounting is based on double-entry bookkeeping. To understand and appreciate the advantages of double entry, it is worthwhile to examine the simpler single-entry bookkeeping system. In its most basic form, a single-entry system is similar to a checkbook register and is characterized by the fact that there is only a single line entered in the journal for each transaction. In a simple checkbook, each transaction is recorded in one column of an account as either a positive or a negative amount in order to represent the receipt or disbursement of cash. This system is demonstrated in the following example for a repair shop business:


Single Column System

Date Description Amount
Jan 1 Beginning Balance

1,000.00 

Jan 2 Purchased shop supplies

(150.00)

Jan 4 Performed repair service

275.00 

Jan 7 Performed repair service

125.00 

Jan 15 Paid phone bill

(50.00)

Jan 30 Ending balance

1,200.00 



While extremely simple, because the above system uses a single column, only the difference between revenues and expenses is totaled - not the individual values of each. Knowing the individual total amounts of revenues and expenses is important to a business, for example, when formulating a budget. The revenues and expenses also are reported in the income statement. In the above example, the individual revenue and expense amounts can be determined only by sorting through the transactions and tabulating the revenue and expense totals. This process can be designed into the system by using a separate column for revenues and expenses:


Separating Revenues and Expenses

Date Description Revenues Expenses
Jan 2 Purchased shop supplies  

150.00 

Jan 4 Performed repair service

275.00 

 
Jan 7 Performed repair service

125.00 

 
Jan 15 Paid phone bill  

50.00 

  January Totals

400.00 

200.00 



While the above example now uses two columns, it still is considered to be a single-entry system since only one line is used to record each transaction in the cash account. This single-entry system often is expanded to provide more useful information. For example, additional columns can be added to classify the revenues as sales and sales tax collected, and the expenses as rent, utilities, supplies, etc. Some single-entry systems may add dozens of columns for different types of revenues and expenses. Many small businesses utilize such a system. However, even with columns to classify the revenues and expenses, single-entry bookkeeping is limited in its ability to provide detailed financial information. Some disadvantages of a single-entry system include:

  • Does not track asset and liability accounts such as inventory, accounts receivable and accounts payable. These must be tracked separately.

  • Facilitates the calculation of income but not of financial position. There is no direct linkage between income and the balance sheet.

  • Errors may go undetected and often are identified only through bank statement reconciliation.

Because of these drawbacks, a single-entry system is not practical for many organizations such as those having many thousands of transactions in a reporting period, significant assets, and external suppliers of capital. The more sophisticated double-entry bookkeeping system addresses the more demanding needs of such businesses.



       
   Note: the page content was squeezed for you with a focus on , by Paperfree Magazine Team, editor -  
 





The End
What is next?

Go ahead and share it!

check this out, Single Entry Bookkeeping 




Want more content related to "" ? Subscribe PaperFree  Magazine! 

We will send an email from PaperFree Magazine with the top content on this subject: , .






Partners Network Center




paperfree
paperfree
paperfree

 








last update Wednesday, May 03, 2017

PaperFree.com is the most flexible business management system, set of tools: Customer Relationship Management with focus on , Enterprise Content Management System with focus on and more, serving the entire U.S., including the cities of New York, Los Angeles, Chicago, Dallas, Seattle, Miami, Tampa, Phoenix, Cleveland, and San Francisco as well as Fairfield County, CT, Westchester County, NY and Rockland County, NY.

 

Copyright © 2020 PaperFree, Inc. All rights reserved. | About | Feedback  | Powered by PaperFree 



Read more at Paperfree Magazines