The Truth About Single Entry Bookkeeping

Keeping track of money is important for every business, no matter how small. This is where bookkeeping comes in. Bookkeeping helps record all the money that comes in and goes out of a business. It gives a clear picture of profits, losses, and how the business is doing.

One method that many freelancers, solopreneurs, and very small service industries prefer is single entry bookkeeping. It’s a simple and affordable way to manage finances without needing a background in accounting or corporate finance.

In this blog, we’ll talk about what single-entry bookkeeping is, how it works, its pros and cons, how it compares to double-entry bookkeeping, and whether it’s the right fit for your business.

What Is Single Entry Bookkeeping?

Single entry bookkeeping is a basic way of recording financial transactions. It tracks income, expenses, and cash flow using just one entry per transaction. Think of it like keeping a checkbook register or using a spreadsheet for your personal finance.

Unlike double-entry bookkeeping, where each transaction affects at least two accounts (like debits and credits), single entry only records one side of the transaction.

How Single Entry Works

In a single entry system, you write down every payment, income, or expense in a single ledger or sheet. It usually includes columns like date, description, income, expenses, and balance.

Example:

May 5 – Received $500 from Client A (Income)

There’s no need to track assets, liabilities, or equity (finance). It’s a simple method that helps small businesses stay organized.

Who Uses Single Entry Bookkeeping?

This system is best for:

• Freelancers and solopreneurs
• Very small business ownerships
• Side hustles
• Businesses with few financial transactions and no complex financial reporting needs

If you’re not dealing with inventory, loans, or accounts payable/receivable, single entry can work well.

Advantages of Single Entry Bookkeeping

Single entry bookkeeping has several benefits for small or growing businesses:

• Simple to Use: Easy to understand and doesn’t require accounting skills.
• Low-Cost: No need to buy fancy bookkeeping software or hire a financial services firm.
• Time-Saving: Quicker than managing a full financial accounting system.
• Meets Basic Needs: Enough for basic income and expense tracking.

If you’re in the private sector with limited financial activity, this system helps you stay organized without overcomplicating things.

Disadvantages of Single Entry Bookkeeping

Even though it’s simple, there are some drawbacks:

• Limited Financial Insight: Doesn’t produce a balance sheet, income statement, or other important financial statements.
• Error-Prone: No way to double-check your records using trial balance like in double-entry systems.
• Not Scalable: Becomes inefficient as your business grows and deals with more financial markets and clients.
• Tax Issues: May not be enough to meet Internal Revenue Service (IRS) rules or prepare for audits.

Single Entry vs. Double Entry Bookkeeping Table of Comparison

Key Differences Between Double Entry vs Single Entry Bookkeeping

Double-entry bookkeeping records each transaction twice – once as a debit and once as a credit. This keeps the accounting journals and ledgers balanced and makes it easier to spot mistakes.

In single-entry bookkeeping, each transaction is recorded once. It’s good for tracking revenue, expenses, and cash, but it doesn’t show how much a business owns (assets) or owes (liabilities).

When to Use Each System

Double-entry is better for growing businesses, corporations, eCommerce bookkeeping,  and those needing detailed financial reporting.

On the other hand, single entry bookkeeping is ideal for small setups like freelancers, trade workers, and hobbyists who just want to track money flow.

Can You Switch from Single to Double Entry?

Yes, and sometimes you should. If you:

• Start handling inventory, loans, or tax deductions
• Need to create cash flow statements
• Want to raise investment or deal with banks

Hence, it’s time to upgrade. Switching means setting up new ledgers, getting help from an accountant, and possibly using accounting software.