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Questions
Justify the following:
Every transaction is recorded in at least three accounts.
“Every transaction is recorded in at least three accounts.” Justify this statement.
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Solution
Double-entry accounting involves debiting and crediting at least two accounts for each transaction. This approach guarantees the accounting equation (Assets = Liabilities + Equity) is balanced. In some circumstances, a single transaction may affect many accounts. When a business acquires merchandise on credit, it impacts the merchandise account, Accounts Payable (creditor), and Cash or Bank account (if payment is paid in part or full). To preserve the accounting equation and ensure accuracy, financial transactions are normally documented in at least three accounts.
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