When you register with tax authorities, you are supposed to choose the accounting entry system for your book-keeping. Single Entry and Double entry. This article will cover the difference between these and will suggest a match according to your business needs and requirements.
What is Book Keeping?
A business has a lot of interactions in financial terms with vendors, customers and other stakeholders. As you are registered as a Freiberufler, Gewerbetreibende or as others with the tax establishment, recording these financial transactions becomes an obligation, this is called book keeping.
Single Entry
Definition: Single entry book keeping system (Einnahme-Überschuss-Rechnung) is generally used for the businesses with the small scale. Record keeping is done in one account usually which shows a reductions and increase subject to an outflow and inflow.
Example: Your client pays you the invoice for the consultancy service through bank transfer, and you will record the increase in revenue only (revenue account).
Advantages: Simple to use and inexpensive.
Double Entry
Definition: Double Entry book keeping (Betriebsvermögensvergleich) is about maintaining two accounts. The principle here is each transaction would have opposing effects in two different accounts which will be equal in value.
Example:Your client pays you the invoice for the consultancy service through bank transfer, you have to record the payment on one side (here bank account) and on the other side what it was for (here debts from revenue).
Advantages: Accurate and Reliable for Auditing.
What to choose in your case?
Beginners usually use single entry as self employed entities because it is easier to understand and work with.
For freelancers, it is always a choice to opt for single entry bookkeeping, whereas for sole-traders it is not. Why? because the official condition provides them with a choice of selecting single entry bookkeeping if their turnover was less than 600'000€ per year or their profit was less than 60'000€ per year.
If you are using single entry, since you cannot rectify your transaction entries against an opposing entry for the same transaction (double entry), it is recommended to manually look for in-accuracies and mistakes related to your business income and expenses.
Accountable aims to provide information on tax and accounting problems via the knowledge centre which serves as a library to the solutions of different tax complexities faced by self employed people. To get a personalised response to your question, feel free to reach out to your own tax coach from Accountable Customer Service.