Question

Why is it important to use double entry system for recording all accounting business transactions? Consider...

Why is it important to use double entry system for recording all accounting business
transactions? Consider at least ten suitable accounting transactions of any business and
explain double entry system by using the concept of accounting equation.

Homework Answers

Answer #1

The double-entry system divides the accounting ledger into two sides.

One effect of the transaction is recorded on the left (debit) side of the accounting ledger. These include:

Increase in assets and expenses, and

A decrease in liabilities, income, and equity.

The other effect is recorded on the right (credit) side, which includes:

Increase in liabilities, income, and equity, and

A decrease in assets and expenses.

The rule of double-entry is that all debits are equal to all credits. So if a transaction increases the assets by $1000 (debit), there should be an equivalent credit effect that explains the increase, such as:

Income from sales

A loan from a creditor

Investment by the owner

A decrease in another asset

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