Double Entry

AccountingIntermediate Level

10 flashcards

Card 1 of 1010%

Question

What is the purpose of double entry accounting?

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Answer

Definition

Double entry accounting ensures that every transaction is recorded in at least two accounts, maintaining the accounting equation: Assets = Liabilities + Equity.

Example

If a business takes a loan of $5,000, it would increase its cash account (asset) and also increase its loan payable account (liability) by the same amount.

Quick Tip

Every action has an equal and opposite reaction in accounting!

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