Why It Is Necessary To Adopt Double Entry System Rather Than Single Entry System For A Small Businesses / Entrepreneur

Double Entry System Is Better Than Single Entry System

We already studied about Double Entry Bookkeeping System And Single Entry System in our previous blog posts. After making comparison between these two Systems, we are now in a position to find the reasons why it is important for businesses, especially, for Small And Medium Enterprises (SMEs) to follow Double Entry System rather than weak and improper Single Entry System for Bookkeeping and Accounting Records.

1. The First Reason is that Single Entry System lacks necessary and important information i.e., in case of Cash Sales Business Transactions, which are taken place on daily routine line basis, and hence there may be lots of mistakes and errors and frauds while recording accounting data. So Proper Books of Accounts is necessary for running the business successfully.

2. Many mistakes, errors and frauds destroys the business and ultimately the small business need to close due to lack of sufficient Working Capital.

3. There is no consistency in Planning whether to adopt Accrual Basis or Cash Basis of Accounting due to the lack of Proper Accounting Records i.e., Either Accrual Basis of Accounting is adopted where goods are sold both on Credit Basis and Cash Basis or Cash Basis of Accounting if most of the sales of the business are made on Cash Basis. Sometimes, one aspect of transaction is recorded but in some cases, complete information is missing which can not make decision accurately and works well in developing the business in selling the products to customers on day-to-day workings. For Example, If a company orders most of the goods on Credit Basis and pays its bill after 15 days, then if Small Entrepreneur refuses to sell to that company on credit basis, then in this case it is a Loss to the business as the customer (Company) is very important and credible for that Small Entrepreneur.

So, the Small Successful Entrepreneurs always try to analyze its business data wisely and maintain proper books of accounts in order to avoid or minimize loss in real disaster situation.