Question

"Every transaction affects at least three accounts." Comment.

Answer 1

1. Every transaction affects two accounts and not at least three accounts. Every transaction has two aspects - one is debit and another is credit.
2. According to this principle, every business transaction has a double (dual) effect on the business. This double effect can be recognised only by recording both the aspects of every transaction.
3. There are two sides of every transaction. If one account is debited, any other account must be credited and vice-versa. The system of recording transactions on the basis of this principle is known as 'Double Entry System'. It is due to this principle that the two sides of the Balance Sheet are always equal.