If you own a company or a business venture, knowledge about the different types of bookkeeping systems used globally is an absolute imperative to keep track of your business and financial transactions. It also enables you to identify which type of system is the most appropriate for the company you have or the client you serve.
There are mainly two types of bookkeeping systems that are used in recording transactions:
1)Single-Entry Bookkeeping SystemsThis system is used for small enterprises with a minimal amount of operations. It is a comparatively simple and practical way of recording business transactions related to cash disbursement, receipts, sales and purchases. It is an informal system allowing the bookkeeper to maintain a daily as well as a monthly record of cash receipts and payments, which represent revenue and expense respectively. In this type of system, a transaction affects only a single account, that is, a cash transaction is reflected only by an increase in receipts or deposits without changing the corresponding sales account. However, this system is sometimes too simplistic and is prone to shortcomings and errors as it lacks an accurate transaction recording system.
2)Double-Entry Bookkeeping SystemThis system is the standard of transaction record-keeping used by most businesses and accountants. It is more complex and elaborate than the single-entry bookkeeping system. It puts forward the idea of debit and credit, that is, a debit entry in one accounting system is accompanied by a corresponding credit entry in another system. Sometimes, an accountant may be required to make multiple debit entries for a single credit entry. This system allows for the financial performance of a business to be precisely determined based on the bookkeeping details obtained.
There are two methods of bookkeeping in use today:
1)Manual BookkeepingThis is the oldest form of bookkeeping known to humankind, where the bookkeeper uses a ledger book to file different entries related to business transactions. Small and Medium Enterprise (SME) owners generally use this method of manual bookkeeping as it is convenient for maintaining less complicated financial transactions and is economical.
However, the recording process is laborious, and the retrieval process for previous business transactions is time-consuming too.
2)Computerised BookkeepingIn the age of technology, electronic bookkeeping is the newest and most innovative system of recording transactions. With many bookkeeping and accounting software available on the market today, auditing has never been faster or more convenient. The fundamental principle of bookkeeping and accounting are still followed, the difference being it is now implemented by a machine. This eliminates the fatiguing tasks involved in manual bookkeeping and accounting, hence making the recording and archiving of business transactions faster and easier. This type of system is not used by SME's as it is costlier than its alternative and also requires a lot of technical guidance and instructions to use and maintain such a system. However, most major businesses and corporations around the world use computerised bookkeeping due to its relative efficiency, reliability and accessibility.