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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Which statement correctly describes the double entry system of book-keeping as used in the accounting equation?

Under double entry, every transaction has two aspects, a debit and a credit of equal amount, so total debits always equal total credits. This keeps the accounting equation in balance. It applies to all transactions, not only cash, and to all types of accounts.

  1. AEvery transaction affects only one account, which is debited or credited
  2. BEvery transaction has two aspects, so total debits equal total creditsCorrect
  3. COnly cash transactions are recorded with two aspects
  4. DDebits are recorded for assets only and credits for liabilities only

Explanation

Double entry recognises that each transaction has a debit aspect and a credit aspect of equal amount. This keeps the accounting equation balanced and makes the trial balance agree. Single-entry records are incomplete and use only one aspect for many transactions.

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