3 Hill StreetRedcarNorth YorkshireTS10 1BU

Accountancy Services in Redcar

Phone Number: 07855 326 609

What Are The Types Of Bookkeeping

  • Posted by:
  • Admin
  • Tags:
  • BOOKKEEPING, SYSTEMS, TYPES
  • Posted date:
  • 15-11-2021
What Are The Types Of Bookkeeping

What are the types of bookkeeping? If you are thinking of hiring an accountant to manage your bookkeping, you will need to understand the types of bookkeeping that you need help with. Find out more about the types of bookkeping services offered.

Bookkeeping systems

The two most commonly used bookkeeping systems are single-entry and double-entry bookkeeping. Both approaches come with particular advantages and disadvantages. It is up to the management or business owners to determine which of the two systems is more appropriate for them. 

Here we have listed in more detail the differences between the two systems. Hopefully, these will help you choose whether single-entry or double-entry bookkeeping will be the best for your business.

 What Are The Types Of Bookkeeping?

As the name might suggest, the single-entry system involves recording a single financial transaction or element of financial activity for a business. This is a very basic system that almost anyone can do. Still, only professional bookkeepers have the experience and knowledge to know which financial transactions need recording and how best to represent them accurately.

A company or business might use single-entry bookkeeping to record typical daily receipts or create regular cash flow reports, either daily or weekly. The system's simplicity is not well suited to more complex transactions or businesses that rely heavily on financial information and detailed reports.

A Double-entry system requires a bookkeeper to input two pieces of data into the records for each transaction or element of financial activity. One of the primary advantages of a double-entry bookkeeping system is that it allows for more accurate checks and balances in a business's accounts.

Each element of the double-entry system and its records will match whatever credit entry is made for a transaction with the corresponding debit entry. As you can probably tell, double-entry systems do not record cash. This system is best suited for businesses that need to record when debts are incurred or earned revenue.

Bookkeeping Types You Should Know

Regardless of the type and size of your business, having effective and accurate bookkeeping is essential. The best way to ensure that your bookkeeping is of the highest standard is to perfect the basics. Without the essential building blocks of a good business bookkeeping operation in place, you can't expect to monitor your finances in a way that will benefit you.

However, don't worry if you are unfamiliar with the different types of bookkeeping used in business. Here we have listed some of the most common and important types of bookkeeping used in business. We have also detailed their advantages and how they can be of use to you and your business.

BOOKKEEPING TYPES YOU SHOULD KNOW

Cash accounting is the most basic type of bookkeeping you could use. While simple, it is also very effective at keeping track of your finances. Whenever money passes through your business as a transaction, it should be logged and recorded in your cash account, whether incoming or outgoing.

However, if your company is particularly busy, with lots of business transactions taking place day-to-day, it can be difficult to record them all accurately. The more cash flow your company has passing through it, the more sophisticated your bookkeeping system needs to be.

Keeping tabs on these transactions is the sole purpose of bookkeeping. Therefore, many professional bookkeepers will create two records to monitor your finances. These are cash receipts and cash disbursements. Having both of these pieces of financial data will allow you to keep a closer eye on how your company is performing and its financial health.

This type of bookkeeping is used in very specific circumstances. Mainly, if a business deals with customers who do not need to pay for their services immediately, they will need to employ an Accounts Receivable element to their bookkeeping.

An example of this would be a business that uses credit periods, offering their products or services for customers to buy using credit. This is a more complicated form of transaction than simple cash payments and needs to be recorded accurately and tracked carefully. Bookkeepers using Accounts Payable will need to keep a close eye on what is owed to the company by its customers.

Having this type of bookkeeping in operation in your company will allow you to check on the status of any payments your company is due. With accurate bookkeeping, management will quickly see whether these payments are still outstanding or whether they have been collected.

Everyone involved in the financial management of a company must pay close attention to this account. If the records of orders or payments go missing or are missed out, the company may find itself quickly out of pocket. They may even have to make up the difference for the inaccurate invoices themselves.

Ensuring your Accounts Receivable is up-to-date and accurate not only ensures the success of your company; it also allows you to send out bills for services and products promptly. Providing a professional service for your customers includes ensuring you are paid for your services on time.

Inventory accounts help you keep track and account for all of the stock and products you hold within your company. Any company with many products should arrange for regular stock takes to ensure all of your stock is accounted for.

The main advantage of inventory is that it provides you with a financial statement of all the stock sitting in your storage room or warehouse holding value that you need to sell. This helps to give an overall picture of your company's finances, along with the assets you are currently holding.

This type of bookkeeping helps to create a more accurate picture of a company's financial position. This, in turn, allows the management side of the business to better forecast for the next accounting period and more appropriately plan to help the business grow.

On the opposite side of Accounts Receivable, Accounts Payable is the less friendly of the two bookkeeping forms. Just as the former records all of the money owed to your business, the latter records all of the money that your company owes to others.

This will give you an accurate picture of how much money is leaving or has left your business when it left and for what purpose. As with any bookkeeping, Accounts Payable needs to be kept accurately, but it is more important that these accounts are the most accurate.

If you have inaccurate Accounts Payable data, you may find yourself making necessary payments too late. Other consequences could include overspending, which could lead you to wind up short for your monthly outgoings, or you may find yourself making unnecessary payments or paying someone more than once.

Loans Payable does what it says on the tin: it tracks any business loans that you owe, how much of them you have paid off, and how much there is left to pay. 

Much like Accounts Payable, this type of bookkeeping will help you keep track of your finances and help you to make the right payments at the right time.

Another fairly obvious element to bookkeeping regarding your transactions, your Sales data records all of the payments you have received for products and services. Ensuring that your Sales data is recorded accurately and quickly will allow you to have a more comprehensive understanding of how your business is performing.

You need to record your Sales data quickly, especially if you are dealing with many transactions each day. With a large volume of orders flying in, it can be easy to miss one here or there. This can ultimately lead to poor customer satisfaction when their orders are filled while also losing you money.

This section is where your professional bookkeeper will track all of the materials or assets you have bought on behalf of the company. 

This account works with the Sales account to calculate the Cost of Goods Sold (COGS) and your gross profits. Without an accurate account for either, you won't be able to gauge where your company stands.

Here we have broken down the various duties and roles performed by both bookkeepers and accountants so you can better see the difference between the two functions. Depending on your business's needs, you could find that you may need either a bookkeeper, an accountant or both.

A bookkeeper's responsibilities are generally straightforward, depending on the type and complexity of a company's transactions. They will ensure that the company's financial information is logged and kept up-to-date in a logical way. An accountant's responsibilities are a little more complex. 

It is their role to interpret this data to determine the financial health of a company. The accountant will then inform all of the necessary parties about this.

Bookkeeping is typically a passive job, and those in this role will not play an active part in managing a company's finances. They will simply record whatever financial transactions a company makes. 

On the other hand, accountants take a slightly more active role, but only insofar as they interpret the financial data the bookkeeper records. These interpretations will be compiled into reports, such as financial statements, budgets, or managerial accounts.

One of the main skills a bookkeeper needs to have is an eye for detail. The ability to keep thoroughly accurate accounts of a company's transactions is the best thing a bookkeeper can have. Apart from this, a bookkeeper must have at least some idea of what the role entails, such as what data they need to record and how it should be presented.

In some cases, a bookkeeper will be overseen by a professional accountant, either within the business itself or externally. Accountants will need to have either the necessary experience or professional qualifications to carry out their work. At least some understanding of the complexities of the role will be useful, but they can often be supported in their job by an external accountancy service.

As previously mentioned, bookkeeping is inherently a passive role, where collecting information is all that is required. Therefore, bookkeepers will not be able to offer any help with the financial decision making of a business. 

The accountant's role is to interpret the information gathered by the bookkeeper so that when presented to the management side of the business, they will be able to make informed decisions about the company's finances.

Methods of Bookkeeping

Manual methodology of Bookkeeping

A paper-based system that is more in tune with the traditional method of bookkeeping.

Each transaction that the company makes is noted down manually in a ledger or register for its records. 

This is the most common method used by small businesses that do not require more complex bookkeeping forms.

It is also the cheapest method of bookkeeping. However, seeing as it is performed by hand, this task can be quite time-consuming and tedious.

Computerised methodology of Bookkeeping

A more modern method of bookkeeping and recording your business's transactions. 

Your bookkeeper will most likely use sophisticated accounting software, such as Tally.ERP 9 to record and keep track of all your company's transactions. 

This method is a far easier, more accurate, faster and cost-effective way of keeping track of a large amount of financial data.


Are you looking for payroll accountants in Redcar, Middlesbrough and North Yorkshire? Penny & Pounds can help you organise your bookkeeping and accounts.