How to Keep Bookkeeping Records

The Basics of Double Entry Bookkeeping
The term "double entry bookkeeping" has the same meaning as "double entry accounting" and is in fact the one and same thing.

There are 2 basic bookkeeping methods used - single entry and double entry.

  1. Single Entry - is a system whereby only one entry is recorded for each transaction, hence the term single. Many businesses can run quite well using the single entry system. The only problem is that there is no check on accuracy and if you leave out an item then it is very difficult to pick up if that item has been missed. Single Entry is sufficient for smaller businesses where there is little need for a double entry type system.

  2. Double Entry - requires 2 entries for every transaction. It means that for every debit there has to be a credit. For every transaction going out there must be a corresponding transaction coming in. This double entry method provides a cross check and ensures that errors are minimised. It is the best option and is the accepted accounting system in use for most businesses today.

Debit and Credit Entries for Standard Items
The debit entries will record such things as:

  • Assets
  • Increase in assets.
  • Expenses
  • Expenses incurred.
  • Liabilities and reduction thereof.
  • Reduction of equity.

Credit entries will include such things as:

  • Liability
  • Increases in liability.
  • Equity
  • Increases in equity.
  • Increases in revenue.
  • Reduction of assets.

Any one of the debit entries will be reflected in one of the credit entries. That is, the transaction is always visa versa. For example, if you pay for equipment of $750, the debit entry will be $750 against the equipment account (because equipment is coming in and therefore increasing the equipment asset). The credit entry will be $750 against the bank account (because cash is going out of the bank account thus reducing the bank asset).

The asset coming into the business (equipment) must be reflected by the asset (cash) going out of the business. This simple explanation illustrates the effect or the action involving a debit and credit in the system of bookkeeping.

How to Keep your Bookkeeping Records
Bookkeeping records can be kept in a variety of ways.

Some of these include:

  • Handwritten systems, which are manually kept.
  • Handwritten systems where you can make use of sensitised paper.
  • Accounting machine systems.
  • Computerised systems.

Any of these systems will suit the needs of most small businesses. If you choose a system it will depend on factors such as:

  1. The type of business you conduct.
  2. The size of your business.
  3. Other means that you use to maintain financial controls.
  4. How often you require your financial data to be extracted.
  5. What other benefits you need from your bookkeeping system.
  6. How much you are prepared to pay for a system.

Whatever system you choose, you must ensure that everything is kept current, because outdated information is of no use to you in your business.