Businesses run with transactions. The transactions can be small or big, operational or overhead costs or basic salary and payroll related. All of these require management on your part. If you are managing and recording your business transactions with single entry methods, a few months down the line, you’ll be in for lots of hassle.
This article aims to introduce you to the drawbacks of single-entry accounting and bookkeeping system for your business.
Four Drawbacks of single-entry accounting systems
Single entry accounting systems have now become obsolete. But business owners aiming to save money are carrying out accounting and bookkeeping by themselves using this approach. It leads to too many piles of records that are difficult to relate to each other and use for business benefits.
If you are a business owner still using a single entry system for record management, it is time to change your approach to accounting. The drawbacks you may be ignoring are significant enough for you to change business practices. These are as follows:
1. Can’t ascertain true profit or loss
When you are using a single entry accounting system, you do not get a separately managed nominal and a real cash account. Since you get only a basic account, it gets difficult to ascertain correctly the profits and losses of your business over a period of time. Thus, single entry records reflect an incomplete record of your business transactions and are not beneficial if you require key business insights and analytics.
2. Not systematic
The single entry system of accounting follows no rules and principles. Thus it is unscientific and unsystematic in nature. It doesn’t let your organization have a system of flow of information when it comes to transactions. Thus, you will observe mounting issues in reporting of information to the concerned authority.
3. Inaccuracy in arithmetic
Since there is no way to balance the equations and link one record to another in a single entry system, you cannot expect accuracy in the numbers. It is almost as if you hate technology and do not want even a simple computer program to help you manage your records. You must at least get hold of double-entry record-keeping and balance sheets to let basic mathematics help your business.
4. Vulnerability to frauds
Single entry accounting means entering every transaction with no link to another of the transactions. When there is no link, it is difficult to establish consistency in the record of transactions. In such a scenario is very highly probable for your records to give the black sheep in your company to hurt your business. A single entry system has as its biggest drawback its inability to protect your records from frauds.
Still, stuck in a single entry accounting system?
Well, it’s about time you change that about your business. The single entry account9ing approach may be the reason your business has not been able to make big projections and assess the profits. It is a system that is unscientific and is incapable of ascertaining the level of profits and losses in a given period of time.
The system is incomplete by its very nature and doesn’t offer arithmetic accuracy. It doesn’t help you reflect on the true measure of business position, potential, and performance. It also leaves your business vulnerable to fraudulent activities mishaps. This, you need to get rid of this practice of single-entry accounting.
Thus outsource a professional accounting service now. If you are in the UAE, you have many professionals around which provide trustworthy services for businesses like your looking to make a switch. You can seek one of the Best accounting firms in Dubai to ensure that you get rid of the drawbacks of the obsolete single entry approach.
You will be able to make use of key insights that help you with business decisions. You will be able to have an overview of the profits and financial standing of your business. With professional accounting services, there will be very little to no chance of fraud and loopholes in the flow of information.
So, choose your professional accounting services now!