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Although most businesses don't have a 1:1 ratio between orders and receipts, I think it's an easy starting point to explain why accountants would generally agree that even such a business would be better handled if its accountant/s use a ledger as well, rather than only a book of orders and a book of receipts.

What advantage is there by using a ledger (especially in businesses with a 1:1 order-receipt ratio)?

Please put aside the issue of "standards" and "obligations" (to tax authorities) as I'm asking about the technical advantage per se in the lightest accounting scenario I know of (1:1 ratio as explained).

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  • do you have any other expenses? Supplies, materials, utilities, computers, salaries... Jul 24, 2020 at 12:34
  • This question is about accounting and thus specifically off-topic for this forum. It should be deleted instead of just closed, Jul 24, 2020 at 16:17
  • @DilipSarwate This is not off-topic on the site; accounting questions reflecting small personal businesses are allowed per our guidelines. Jul 24, 2020 at 16:38
  • To the close-voters - I'm curious about the motivations for the question. It may be a genuine question about how best to keep personal records, which would be on-topic as "bookkeeping" under the "sole proprietorships" section. Let's hold off for say 24h to let George have some time to clarify the question.
    – Lawrence
    Jul 24, 2020 at 17:08
  • @George In your scenario, what is the purpose of recording even your orders and receipts, if you have them in 1:1 correspondence? This may help the community to address what you're looking for.
    – Lawrence
    Jul 24, 2020 at 17:14

1 Answer 1

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Simply put, the language of business reporting is a general ledger. If you don't adopt a universally accepted system of managing your business, how would you communicate those results to anyone, in a way they could take seriously?

If you have a table saw in your garage and make a few hundred bucks a year cutting boards to length for friends and family, you probably don't care about that, and a single order book showing who still owes you might be enough. But even then, how do you report your income to the tax authority (you haven't mentioned a country).

What if you want a small business loan? How will you communicate your business results to the bank if you don't 'speak their language'?

But more than that, there is a reason this system is universally adopted: because it promotes cleanliness and allows for a translatable understanding of what is actually happening in your business.

If you don't record your incomes and your costs differently than how you record your capital investments (computer equipment, or whatever), how will you know if your business is profitable? If your business is basically just consulting work, that may not matter, because your costs are almost Nil - but even then, wouldn't it be nice to have a tracking of what your fuel costs are driving to client locations, so you can decide whether you need to charge a premium for out-of-towners?

The point is that good information systems support decision making. Without information, you need to go off of your 'gut', and most businesses don't have the insight to be able to do that accurately, even tiny businesses.

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    @George en.wikipedia.org/wiki/Socratic_method Jul 24, 2020 at 14:34
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    @George Can an answer using a method rejected by the questioner still be good? Yes, as this one is.
    – TripeHound
    Jul 24, 2020 at 15:54
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    @George Asking exploratory questions in answers is not allowed: as you say, they belong in comments. Styling a perfectly decent answer as a series of questions to try to encourage the reader to think about the problem is most definitely allowed. If this goes against a deeply-held belief of yours, then the chances are you aren't going to enjoy it here... sorry.
    – TripeHound
    Jul 24, 2020 at 16:14
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    @George The intent of asking questions like this within the answer, is to have the reader reflect on the problem from a different point of view than what they had considered before. In particular, your question is quite broad, and my guess is that you are quite new to recording business activity, but I also assume you see the value in communicating with others about the business, and making informed decisions yourself. Therefore the reason for asking the rhetorical questions is to try and tie out the concepts of decision making and communication to the practice of accounting. Jul 24, 2020 at 16:34
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    @George I have provided my own thoughts after these rhetorical questions, to show my point of opinion on it, so it is not necessary for you to truly 'answer back', in any case. You could consider the first question a different grammatical approach to the following: "If you don't adopt a universally accepted system of managing your business, you can't communicate those results to anyone in a way they could take seriously." However, I find that non-question format to be overly direct and doesn't allow for you to have your own perspective. I personally find it a softer touch to allow you to... Jul 24, 2020 at 16:36

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