Single-entry vs. double-entry bookkeeping: what is the difference and which to choose

Choosing between single-entry and double-entry bookkeeping is one of the first important decisions for every entrepreneur. The choice affects not only the amount of administration, but also how precisely you will see your company’s financial performance and what information you will have available for decision-making.

The basic difference

When comparing single-entry vs. double-entry bookkeeping, the main difference lies in the principle of record-keeping. Single-entry bookkeeping mainly tracks income and expenditure, that is, the actual movement of money in the bank account and the cash desk. What matters is when the money actually comes in or goes out.

Double-entry bookkeeping, by contrast, records every business transaction in two accounts at the same time and works with costs and revenue regardless of when the money actually moved. As a result, it provides a more comprehensive and more accurate picture of the assets, the liabilities and the true financial result.

Who can keep single-entry bookkeeping

Single-entry bookkeeping is typical for sole traders and smaller entities that are not entered in the Commercial Register (ORSR). It is administratively undemanding and gives a fairly quick overview of how much money the business actually has left at the end of the period.

• a cash book with income and expenditure
• a receivables and payables ledger
• auxiliary books as needed, such as an asset register

When double-entry bookkeeping is mandatory

Commercial companies, such as a limited liability company (s.r.o.), are required by law to keep double-entry bookkeeping. It provides a more comprehensive picture of the company, which you will appreciate as the business grows and when dealing with a bank or an investor, who will expect such reports from you.

Double-entry bookkeeping is more demanding to keep and usually requires an accountant or specialised software. On the other hand, it allows you to monitor the company in depth and plan better.

How to choose

If you have a choice, consider the size of your business, the number of documents and what information you need for management. A smaller entrepreneur will often appreciate simplicity, while a growing company values the accuracy and informative value of double-entry bookkeeping.

• the volume and complexity of documents
• the need to track costs and revenue over time
• plans for growth and external financing
• the requirements of banks and business partners

Switching between the systems

Switching from single-entry to double-entry bookkeeping, and likewise in the opposite direction, is tied to the start of an accounting period and requires the opening balances to be transferred correctly. An incorrect transfer can cause discrepancies that are difficult to trace retrospectively.

We therefore recommend consulting an accountant about it to avoid errors and unnecessary adjusting entries. Always check the current conditions and limits that determine the obligation to keep a particular type of bookkeeping for the period in question, as they can change.

The effect on taxes and contributions

The type of bookkeeping does not directly determine the amount of tax, but it does affect the way the tax base is calculated. In single-entry bookkeeping you work from the difference between income and expenditure, in double-entry from the difference between revenue and costs, which can lead to a different result in a given year.

When deciding, therefore, also think about how the system will be reflected in your cash flow and in when you actually pay the tax. The more accurate reports from double-entry bookkeeping also make communication with a tax adviser easier.

Common misconceptions when choosing

Entrepreneurs sometimes think that single-entry bookkeeping means fewer obligations in every respect. In reality, the rules on documents, records and deadlines apply here too; the overall bookkeeping is just less extensive.

• do not confuse simplicity with an absence of obligations
• consider future growth, not just the current situation
• seek advice on the decision before the period begins

Related articles: How to take over the accounts from a previous accountant without errors, In-house or external accountant: what really pays off for a company, Closing the accounting year: a complete checklist for entrepreneurs.

Frequently asked questions

Can I voluntarily choose double-entry bookkeeping as a sole trader?

Yes, even if you meet the conditions for single-entry bookkeeping, you can opt for double-entry. The change is made at the start of an accounting period, and it is advisable to consult an accountant beforehand so that the balances are transferred correctly.

Which system better shows the company’s real profit?

Double-entry bookkeeping gives a more accurate picture of the financial result, because it works with costs and revenue regardless of the moment of payment. Single-entry bookkeeping, on the other hand, is closer to the actual flow of money, that is, how much the business currently has left.