Legal Definitions - Single-entry accounting

Single-entry accounting is a simplified method for tracking a business's financial activities. In this system, each financial transaction—such as money received or money paid out—is recorded only once. It primarily focuses on documenting cash inflows and outflows, much like maintaining a personal checkbook register.

This approach is generally suitable for very small businesses, sole proprietorships, or organizations with straightforward financial operations, as it provides a basic overview of cash flow. However, because it only records each transaction once, it does not offer the comprehensive financial picture that more complex systems, like double-entry accounting, provide. It typically doesn't track assets, liabilities, or equity in a detailed, balanced manner.

• Example 1: Freelance Web Developer

  Consider a freelance web developer who uses single-entry accounting. When they receive a payment of $1,500 for completing a website project, they record this as a single entry under "Income: $1,500 from Client X." Later, when they pay $75 for a monthly subscription to a project management tool, they record this as a single entry under "Expense: $75 for Software Subscription." Each financial event is noted once, focusing on the direct movement of cash into or out of their business.

• Example 2: Small Home-Based Bakery

  Imagine a small business owner running a home-based bakery. When they purchase baking ingredients like flour, sugar, and butter for $120 from a wholesale supplier, they record this as a single "Ingredient Expense: $120." When a customer buys a custom cake for $60, they record this as a single "Sales Revenue: $60." This system tracks the money spent on supplies and the money earned from sales, but it doesn't track the ingredients as inventory assets that decrease in value as they are used to bake cakes.

• Example 3: Independent Fitness Instructor

  An independent fitness instructor uses single-entry accounting to manage their business finances. When they pay their monthly studio rental fee of $500, they make a single record: "Rent Expense: $500." When a client pays them $150 for a personal training session, they record "Training Income: $150." This method allows the instructor to easily monitor their cash inflows and outflows, but it doesn't provide a detailed balance sheet showing their total assets (like equipment or outstanding client payments) versus their liabilities at any given time.