The Single Entry Bookkeeping System for Self Employed
The most used accounting technique for businesses is the double entry bookkeeping, a system where all the transactions are entered two times, as equal and opposite transactions. This type of accounting is required for all the businesses that need to produce a balance sheet as well as a profit and loss account.
These rules are not necessary for the self-employed businesses in the UK, since they are not required to maintain a financial control system or to produce a statement for their liabilities and assets for the financial accounting. Currently the balance sheet is optional for self employed businesses in the UK.
There are some advantages as well as disadvantages when it comes to preparing the financial accounts with the single entry bookkeeping system for self-employed businesses. The simplicity of the operation is the main advantage, because it requires a lower level of knowledge regarding the accounting systems. The absence of financial control is the most significant disadvantage, because of the limited detail of the records.
By using the single entry bookkeeping for your self-employed business, you will prepare the accounts by recording the financial transactions only once. These transactions include the purchase expenses, the sales income as well as the bank and cash transactions. You will not be required to produce a balance sheet or a trial balance, but it would be advisable to record your bank and cash transactions in order to have additional financial control over the business. Even if the bank and cash transactions are not a part of the income and expenditure account, as they are movements of assets or liabilities, it is still recommended to have accurate records of them.
The ‘faulty management’ of small businesses is a common factor that can help drive them into bankruptcy and liquidation sometimes. The first thing you need to know regarding the financial control and the accounting of your business, is that your business will always need to have enough cash resources for trading to continue without any interruptions. Keeping a positive cash flow and bank records is of utmost importance, since no business can trade without liquidity.
Thus, single entry bookkeeping is a feasible option for self-employed persons who only need to produce a profit and loss account or an income and expenditure account. However, if you want more financial control when it comes to your business, you should use bookkeeping software. Your bookkeeping software should have an option for a simple expenditure analysis report, in addition to many other types of useful reports, which will give you a clearer picture of all the expenses for the business and hopefully some control over them.