Money Wise Blog

Any business needs to keep track of their finances, and bookkeeping is how it is done. Bookkeeping allows business owners to organize assets, revenue, expenses, and other monetary matters. It is also an effective way to find errors and other losses. Two common ways exist in order to do these duties that are quite different. These are double entry bookkeeping and single entry bookkeeping.

When using the double entry method of bookkeeping, two or more financial accounts are affected simultaneously by the same transaction. As the double entry bookkeeping method has evolved, it has become mainly a series of credits and debits. All of the credits related to one account are added together as are the debits from another account. A comparison is made of the two sums. If the negative sum equals the positive sum, then the books are balanced. Because two figures are compared, it helps to discover errors and discrepancies.

In order to keep all of the credits and debits straight, positive signs are given to credits and negative signs are given to debits. Whatever the amount of a credit is in one account is recorded as a debit in the other. These figures are entered in books called ledgers. Every account receives its own ledger in order to maintain organization in the double entry bookkeeping system. As a credit is entered in one and the corresponding debit in entered in another, a checks and balancing process is happening. By entering the amount of a transaction twice, the books are balanced as you go.

As you can probably tell, double entry bookkeeping is not for the inexperienced. It takes training and skill. Those who operate small businesses that don’t move as many numbers don’t need something as complicated, though. The answer for them is single entry bookkeeping. As a matter of fact, owners of businesses this small can probably do the bookkeeping on their own. The name of the game is simplicity and will only work for companies this small. That’s because there is a small enough amount of transactions that only the bare minimum needs to be recorded. This includes cash, accounts receivable, accounts payable, and taxes. Single entry bookkeeping provides a huge benefit for small business owners because it is not nearly as costly as double entry bookkeeping.

In today’s world, double entry bookkeeping is the method almost all businesses practice. Smaller businesses that don’t need to keep track of all those numbers use single entry bookkeeping. Whichever method is used, it is a necessary component of any successful and organized business.

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Small business owner ply their trade in order to create cash flow and fill up their bank accounts. Their hard earned money does, however, need to be recorded, tracked, and organized so that the information in available when needed. If the business is very small, the owner might be able to handle the books himself, but most will need to seek the help of a professional bookkeeper.

Many times, small businesses don’t generate so much revenue that an in-house bookkeeper or accountant is necessary, so they outsource the job. One benefit of outsourcing the work is simply having a bookkeeper. He or she brings experience to the table that the small business owner probably does not have. By outsourcing the bookkeeping duties, it leaves the owner more time to take care of the core business: promotion, marketing, performing the actual job, etc. A business owner who attempts to keep books themselves also has no one to check for the mistakes that will likely be made. Outsourcing to a professional bookkeeper avoids these costly and time-consuming mistakes to begin with.

Some small business owners may think that having an in-house bookkeeper is necessary, but it is probably not. If the business is small, there are not likely enough transactions occurring to justify keeping a full-time bookkeeper on the payroll. Their salary alone adds up quickly, and if you look deeper you will realize that a full-time employee requires a retirement plan, medical insurance, and workers compensation on top of it. Even the quickest math will show you the dollars this demands. Outsourced bookkeepers are not employees, so they do not need these benefits.

Options are available to a small business when outsourcing bookkeeping services. Since every business is run differently, every business will have unique necessities. The owner and bookkeeper can come together and determine what services need to be performed and in how much detail. They can also figure the average number of monthly invoices, deposits, and checks that will need to be processed. A monthly fee can then be calculated. This fee is much less costly than the salary and benefits for a full-time employee.

When a small business owner outsources to a bookkeeping service, he or she is providing themselves with the most valuable resource of all: Time. The level of experience that a professional bookkeeper has will make sure the records are processed correctly the first time. When a small business owner has more time for actual work, he or she has more time for making money.

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