(At least, that’s the justification behind FreshBooks’ cheapest plan, which is geared towards freelancers and offers single-entry bookkeeping only.)īut if you’re dealing with a larger client base and have multiple expenses and invoices a month, we strongly recommend using double-entry accounting instead.
If you send only two or three invoices and pay only two or three bills a month, you can probably get by with single-entry bookkeeping. Single-entry bookkeeping can work for freelancers and sole proprietors who handle just a few financial transactions a month. And since it doesn’t break down your cash flow into categories like expenses, assets, and equity, single-entry bookkeeping can’t give you any real insight into your business’s performance. Obviously, single-entry accounting is much simpler than double-entry, but it’s also much less accurate. That’s it-each financial transaction has just one line, and you don't make multiple entries in multiple accounts. You simply keep a running list of everything you spend and everything you earn. Unlike the double-entry method, single-entry bookkeeping requires you to make one entry per financial transaction. You can dive in and find it before the issue blossoms into a financial crisis. If the amounts don’t balance, there’s an accounting error somewhere in your records. If the total amount in your debit columns matches the total amount in your credit columns, your books are balanced. You always list an increase in assets in the debit (left) column and a decrease in assets in the credit (right) column. Heads up: each asset accounts has its own T account chart. These types of accounts are divided into a T shape with debits listed on the left and credits on the right. So to record the sale, you would enter the amount as a debit under an asset account and a credit under an expense account.ĭebits and credits are a little confusing, especially since they can represent an increase or a decrease, depending on the type of account you’re talking about. Per our example above, selling your fabric increases your revenue and decreases your inventory amount. In accounting terms, a debit marks an increase in assets (or total value) and a decrease in liability (or money you owe), and a credit marks a decrease in assets and an increase in liabilities. And if you’re not sure which accounts you even need, an accountant can steer you in the right direction.ĭebit and credit have slightly different meanings when we’re talking about bookkeeping instead of banking. If you’re wondering how on earth you keep track of all these accounts, the answer is a chart of accounts, which lists every account in your ledger. And if you hire employees, you’ll need a wages account, which is a type of expense account. Expense accounts, which record the amount of money you’re spending on your businessĭepending on your business, your GL will contain several of each type of account.įor instance, if you sell inventory, you’ll have an inventory account, which is a type of asset account.Revenue accounts, which record the amount of money you make selling products or services.Liability accounts, which record the amount of money you owe.Equity accounts, which record the amount of money you and others invest in your business.Asset accounts, which record the total value of everything your business owns.(And for the record, the GL is usually what bookkeepers mean when they refer to “the books.”) There are five main types of accounts that describe every type of financial transaction a business can perform: Instead, accounts are the different sections that make up your general ledger, or GL. In this context, accounts don’t refer to bank accounts. Like we said, double-entry accounting means you’ll always record a transaction as a credit (or increase) in one account and as a debit (or decrease) to another account. Double-entry bookkeeping is the process of recording two entries-a credit and a debit entry-for every one financial transaction.
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