Before you can begin your bookkeeping journey, you must first choose between the methods of available to you.
Things To Consider Before You Decide
- The volume of transactions your business has daily.
- The amount of revenue that you bring earn.
These are important considerations because If you have a small business with minimal assets, it is probably not appropriate to use a method designed for an enterprise.
Single Entry Bookkeeping
Single Entry Bookkeeping is a very simple method of tracking income and expenses. You would record one entry for each transaction in either the income or expense columns.
This method is generally used by very small businesses and sole proprietors with few assets, do not transact on credit and hold little inventory.
Double Entry Bookkeeping
This method is considerably more complicated than the previous method. The general principles state that each transaction affects two different accounts, one of which would be credited and the other debited.
With this method the debits must always equal the credits meaning that the books are balanced.
Choosing this method makes more sense for companies that are public, larger, contract on credit, or have larger assets. The double-entry system leaves less room for error.
Cash-Based vs. Accrual-Based Bookkeeping
Once you have decided on your chosen method, the next decision is whether you will use a cash or accrual basis for your bookkeeping.
A Cash Basis recognizes revenue when it is received and expenses when they are paid out. Therefore, any transaction made on credit is not entered into the books until they are recognized until the revenue is received, or the expense is paid.
An Accrual Basis is one where revenue is recorded as earned, and expenses are recorded as incurred. This happens at that time regardless of whether any actual cash is received or paid.
Both Accrual-Based and Cash-Based Bookkeeping can utilize either the Single-Entry or Double-Entry method.
What Are Some Examples Of Bookkeeping Forms
There are six commonly used in bookkeeping.
- Employee Timesheets
- Income Statement
- Journal Sheets
- Bank Reconciliation Forms
- Balance Sheet
- Delivery Docket