Double-Entry Bookkeeping

The accounting equation is the basis of double-entry bookkeeping.

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Assets + Liabilities = Equity

• Assets - Liabilities = Equity

The rules of double-entry bookkeeping as they apply to assets, liabilities, equity, income, and expenses are:

• Every transaction affects at least two accounts, with debits and credits always balancing.

• Only assets and liabilities are recorded, not equity, income, or expenses.

• Each transaction is recorded only once in the books.

• Debits always increase all types of accounts.

Accounting for basic cash transactions, credit transactions, prompt payment settlement discounts, capital expenditure, and revenue expenditure involves:

• Recording, classifying, and summarizing financial transactions accurately

• Ignoring settlement discounts in all cases

• Treating all expenditures as capital expenditure

• Recording only cash transactions and ignoring credit transactions

Record transactions in ledger accounts and balance off ledger accounts on a periodic basis.

• This is a fundamental accounting process.

• This is a marketing strategy.

• This is a legal requirement for all businesses.

• This is a method of inventory management.

A Trial Balance is extracted to:

• Check the arithmetical accuracy of ledger accounts

• Record all business transactions

• Prepare the cash flow statement

• Calculate net profit directly

Fill in the blank: The accounting equation must always be true. This means that the accounting equation must return to equilibrium (assets = _______ + equity) after a transaction is recorded in the accounting records.

• liabilities

• revenue

• expenses

• capital

Double-entry bookkeeping is the method that ensures the accounting equation returns to equilibrium after each transaction.

• True

• False

Fill in the blank: The accounting equation is in ______ at the end of each day’s transactions.

• equilibrium

• deficit

• surplus

• conflict

Each of the assets, liabilities, and equity can only increase depending on the transaction.

• True

• False

What is the concept called when every transaction affects the accounting equation in two ways through combinations of increases/decreases in assets, liabilities, and equity?

• Duality

• Materiality

• Consistency

• Accrual