The accounting branch of every business uses a defined system to keep track of the finances. Single, double and triple entry are the choices that ensure all of the numbers add up correctly. But what are the differences that make the double entry system stand out? The changes are subtle, yet make a big difference when you’re running a large or small company.
The single-entry system relies on a single entry for each transaction. This includes cash, tax-deductible expenses and taxable income. It’s the simplest of the three main systems, and is always offered as an option in bookkeeping software. With only a positive or negative value to keep track of in a single column, mistakes are less likely to happen when computing. At a glance, the single-entry system makes more visual sense to a non-accountant than double or triple-entry systems. Of course, the main benefit of simplicity is also the main drawback of the single-entry system.
Double-entry is a happy medium between the two main systems. In this system, a credit and a debit account are recorded for each transaction. These transactions must always be equal, which means in double-entry you must always account for the total dollar value. There is some uniformity with the way debits and credits interact with certain accounts. Asset and expense accounts are increased with debit, while equity and liability accounts are decreased. For credit, the opposite effect takes place. By law, you can expect most public companies to use the double-entry system. It is more complex to maintain than single-entry, but has few equals when it comes to eliminating financial errors.
Triple-entry accounting is still in its infancy. It is making some incredible strides, with a lot of popularity from users that want an economy-wide accounting system. Triple-entry is more than just error proofing, and has a strong chance of becoming an adopted system in traditional circles.
Low acceptance is a downside to the system. Some believe it is still in the conceptual stage, while others are hesitant to overhaul their already foolproof accounting systems. In the future, don’t be surprised to see double vs. triple-entry rather than single vs. double-entry.
What Makes Double Entry Appealing?
It’s all in the details. With single-entry, if a mistake is made, you have less information to fall back on. Single-entry doesn’t include accounts like inventory or accounts receivable/payable. For the sake of liability, that makes correcting bad bookkeeping errors incredibly difficult.
Double-entry provides enough information for a company that they can base their entire financial roadmap around it. Any company with more than one employee can benefit from it if they have plans for long-term growth. Double-entry is strong, secure and the default system for the world’s most successful companies.
The integrity of your financial information and transactions should always be a priority. The right bookkeeping system will give you the best results with the least number of errors. Accounting is an artform, so make sure that your artist has a similar vision to your business.