Double-Entry Accounting

Financial Accounting Intermediate

Double-entry accounting is a system where every financial transaction affects at least two accounts, ensuring the accounting equation stays balanced.

Explanation:
In double-entry, each transaction involves a debit in one account and a credit in another. This system is based on the accounting equation:
Assets = Liabilities + Equity

Example:
If a company buys office equipment for $1,000 cash:

Debit: Equipment (asset increases)
Credit: Cash (asset decreases)

Importance:
Double-entry ensures accuracy in financial records and helps detect errors or fraud.

Common Confusion:
Debits and credits are not always good or bad. Their meaning depends on the type of account.