Types & Methods of Bookkeeping System

Bookkeeping is the recording of financial entries and data related to business operations in a significant and orderly manner. The objective of Bookkeeping is to determine the financial position of the business by studying the recorded data.

There are various types & methods of bookkeeping that are practiced in maintaining books of accounts. So, let’s understand the types and methods of bookkeeping.

Types of Bookkeeping System

There are 2 types of bookkeeping systems: The single-entry system and The double-entry system. Each system has its own advantage and disadvantage, the onus lies on business to choose the one system which is most suitable for their business.  

Let’s see both the systems in details:

Single-Entry Bookkeeping System

This system of bookkeeping requires recording of one entry for each financial activity of the transaction. Single-entry system is a basic system that a company might use to record daily receipts or generate a daily or weekly report of cash flow.

Double-Entry Bookkeeping System

This system requires a double entry for each financial transaction. This system provides for checks and balances by recording a corresponding credit entry for each debit entry. This system of bookkeeping is not cash-based. Here, transactions are inputted when a debt is incurred or revenue is earned.

Methods of Bookkeeping System

There are two methods of Bookkeeping system – Manual methodology of Bookkeeping and Computerized methodology of Bookkeeping. 

Let’s see both the methods in details:

Manual Method of Bookkeeping

The Manual method is a paper-based and traditional way of bookkeeping. Transactions are recorded manually by hand using a paper book of accounts such as journal-register, ledger books, etc. It is mainly used by small businesses with less complex business transactions. This method of bookkeeping is cheaper and easy to maintain but requires a lot of time.

Computerized Method of Bookkeeping

Computerized method is a new and trending way of recording business transactions. In this method bookkeeping softwares like Tally.ERP9 is used for recording transactions. It is an easier, faster and convenient way of recording business transactions. It eliminates the tedious tasks involved in manual bookkeeping. 

So, which type and method of bookkeeping to use solely depend on businesses, you can take this decision based on the size of business, type of business, nature of the business, etc.