The Right Type of Bookkeeping Services for a Small Business

Small business owners have different options to handle their bookkeeping matters. Managing their bookkeeping tasks themselves is time-consuming and stressful at the same time. Besides, small business owners can’t effectively focus on business growth if they choose to manage bookkeeping tasks on their own. Outsourcing bookkeeping services for a small business from a reputable accounting firm, such as GTA Accounting, is an option. Besides, there are different types of bookkeeping services that small business owners need to understand to handle their books.

Different Types of Bookkeeping Services

Here are different types of bookkeeping services that small business owners need to comprehend and finally choose the right one:

Single-Entry Bookkeeping System or Services:

The single-entry bookkeeping system involves one entry for each transaction that you can also guess from its name. Single-entry bookkeeping system has a single entry of each business transaction to the accounting records. The single-entry bookkeeping services better suit small businesses that generate a little revenue. Typically, you can’t find the records of assets and liabilities in a single-entry bookkeeping system. Nonetheless, it includes the records of cash disbursements and receipts depicting the cash flow of a company. Here are the advantages and disadvantages of single-entry bookkeeping system:

Advantages:

• Single-entry bookkeeping is simple and easy to maintain
• It is easy to comprehend and manage without the requirement of any professional
• This system makes it easier to calculate profit and loss for a defined period

Disadvantages:

• No accurate information of true profit or loss for any defined period
• Easily vulnerable to fraud and wrong entries
• It doesn’t help to track assets and liabilities 
• You don’t have enough information to predict the financial position of your business
• It becomes challenging to get the audit opinion on the available financial data.

Double-Entry Bookkeeping System or Services:

The double-entry bookkeeping system is based on the accounting equation as follows:

Assets = Liabilities Plus Equity

Debits = Credits

The double-entry bookkeeping system is ideal for small businesses with more intricate financial transactions. You may receive income or give credit to customers while running a small-scale company. In addition, you will need to record such transactions as debits or credits. Here is the basic rule that applies to double-entry bookkeeping:

Debit to the accounts of assets, expenses, or losses.

Credit to the accounts of liabilities, equity, revenue/gains

In other words: The Sum of All Debits = The Sum of All Credits

Advantages:

• The double-entry bookkeeping system is ideal for small businesses that generate more revenue
• Provides better information about the financial health of a business
• It has a built-in form to check errors
• It allows you to track five different transactions, including revenues, expenses, liabilities, equities, and assets. 
• Fraud detection is easier because of the systematic recording

Disadvantages:

Small business owners need to hire bookkeeping services for a small business from experts to manage double-entry bookkeeping

Expensive and not appropriate for every small business

Provides no solution for errors of omission and principle, alongside compensating errors  

Automated Bookkeeping System or Services:

Small businesses who can’t manage bookkeeping themselves or hire a resource can consider using bookkeeping software. A lot of small business software exists in the market for automated bookkeeping. Additionally, even larger organizations with a dedicated accounting team utilize custom-designed accounting software to manage bookkeeping and accounting tasks. However, small-scale organizations usually rely on non-custom accounting software for bookkeeping purposes.  

Advantages:

• The automated report, analysis, and financial statement generation
• Efficient recording of receivables and payables with better cash flow management
• Requires less time for generating customer invoices, bank deposits, or writing cheques
• Allows for integration with e-filing and online banking
• Improved accuracy with reductions in errors

Disadvantages:

• An automated bookkeeping system is more expensive than the paper-based system
• Small businesses may need assistance with initial settings
• Risk of easy manipulation of financial data with no proper security 
• Business growth can suffer an impact without configuration of software
• Difficult to detect faulty information
• Power disruption may result in loss of financial data.

Virtual Bookkeeping System or Services:

Small business owners can get professional assistance and hire remote resources to manage their books via a virtual bookkeeping system. Hence, it’s the right bookkeeping system for small businesses that can’t hire in-house bookkeepers and accountants. Virtual bookkeeping systems allow for the management of payroll ledgers, sale invoices, and expense receipts electronically. An accountant and businessman should use the same software program under virtual bookkeeping to avoid any disruptions.  

Advantages:

• Its flexible and saves cost
• Gives access to advanced tools and federal regulations
• Don’t require any office space and supplies
• Businesses can benefit from other account-related services 

Disadvantages:

• Sensitive financial data is susceptible to misuse
• More chances of miscommunication
• Lack of insider knowledge

Conclusion

Small business owners can manage their books of accounts through four types of bookkeeping systems, mentioned below:

1. Single-entry bookkeeping system
2. Double-entry bookkeeping system
3. Automated bookkeeping system
4. Virtual bookkeeping system

Single-entry bookkeeping system is suitable for small businesses with less revenue, and double-entry is for businesses with more revenue. The right and the best system to avail of bookkeeping services for a small business is virtual bookkeeping. Lastly, small businesses may choose automated bookkeeping systems that can’t hire resources or lack the skills to manage bookkeeping.