There are two basic ways to record your financial transactions:
Single entry bookkeeping can used by small businesses where a balance sheet is not required for financial control or tax purposes.
Double entry bookkeeping is required for all businesses that must produce both a profit and loss account and a balance sheet.
To decide if a single entry or double entry system would be best for your business…consider the type of business you own.
A small sole proprietorship or home-based business may not require a double entry system for recording business transactions.
However, if you have quite a few accounts receivable (money owed to your business by your customers) or accounts payable (money owed by your business), you may want to consider utilizing a double entry system.
Most small business owners do not usually start right out with a double entry system.
It is easier for them to use a single-entry method which is kind of like your check register. You just add the money coming in and subtract the money going out and keep a running balance.
There are pros and cons of using a single-entry bookkeeping system.
The main selling point is the simplicity of single entry bookkeeping.
You just have two lists–one for income and one for expenses.
The main disadvantage of single entry bookkeeping is its limited ability to track your assets (what your business owns) and liabilities (what your business owes.) It is also easier to make errors with. With double entry bookkeeping everything must balance.
I have built my free accounting spreadsheets using the single entry bookkeeping system mainly because the double entry system would be too complicated for me to build and give away and secondly because I had built these spreadsheets in the first place for several small business owners that did not have any prior accounting skills.