What Are Accounting Methods? Definition, Types, and Example

Laura is a freelance writer specializing in small business, ecommerce and lifestyle content. As a small business owner, she is passionate about supporting other entrepreneurs and sharing information that will help them thrive. While hiring a bookkeeper can be expensive, a skilled and trustworthy bookkeeper is well worth their salary for helping catch costly mistakes in your books. Each option has its own set of pros and cons, so it’s important to weigh your choices before making a decision.

Outsourcing the work to a seasoned bookkeeper can allow you to focus on your business plan and growth. Your general ledger should be up to date so that your bookkeeping software is able to provide functionality that you can navigate easily. QuickBooks is an excellent option for novice and seasoned digital bookkeepers alike. In these documents, transactions are recorded as a single entry rather than two separate entries. Again, if you’re using software or you’ve outsourced your bookkeeping, these software and services make it effortless for you to get your financial reports. As we’ve mentioned, there are two main bookkeeping methods, and the type of business you run will determine the method best for you.

Perform Journal Entries to Debit and Credit Accounts

The double-entry bookkeeping method involves recording two entries for a single transaction, which is based on the principle of debits and credits. This means that each transaction will have a corresponding debit bookkeeping methods and credit entry, ensuring accuracy and preventing errors in the recording of transactions. Single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books.

Furthermore, the IRS requires taxpayers to choose an accounting method that accurately reflects their income and to be consistent in their choice of accounting method from year to year. Bookkeepers use a chart of accounts to see all of the accounts in a company’s general ledger. In many instances, an accountant prepares the initial chart, and the bookkeeper references it while recording transactions. One of the most important aspects of financial transactions is recording them accurately. This involves keeping track of all the money that comes in and out of a business. Your accounting ledger serves as the hub for all your financial information—in particular, all your accounts and transactions.

What is the simplest bookkeeping software?

At the end of the appropriate time period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm. The year-end reports prepared by the accountant have to adhere to the standards established by the Financial Accounting Standards Board (FASB). These rules are called Generally Accepted Accounting Principles (GAAP). The financial transactions are all recorded, but they have to be summarized at the end of specific time periods. Other smaller firms may require reports only at the end of the year in preparation for doing taxes.