The Two Fold Effect Of Transactions On The Balance Sheet

Question 1

What is double entry accounting

Answer 1

Double entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the equation Assets = Liabilities + Equity, whereby each entry is recorded so as to maintain the relationship.

Question 2

State the two rules of double-entry accounting.

Answer 2

1 Every transaction will affect at least two items in the accounting equation.
2 After recording these changes, the accounting equation must still balance.