Which of the following systems is the Accounting Equation based on?Triple-entry system of accountingSingle-entry system of accountingDouble-entry system of accountingNone of the above
Question
Which of the following systems is the Accounting Equation based on?Triple-entry system of accountingSingle-entry system of accountingDouble-entry system of accountingNone of the above
Solution 1
The Accounting Equation is based on the Double-entry system of accounting. This system is based on the idea that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the equation: Assets = Liabilities + Equity.
Solution 2
The Accounting Equation is based on the Double-entry system of accounting.
Here's a step-by-step explanation:
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The Double-entry system of accounting is a method that involves recording each transaction twice; this means for every debit entry, there must be an equivalent credit entry.
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The Accounting Equation (Assets = Liabilities + Equity) is a reflection of this system. It shows that all of a company's resources (assets) are provided by either creditors (liabilities) or owners (equity).
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In the double-entry system, each transaction affects at least two accounts. For example, if a business takes a loan from a bank, it will increase both its liabilities (loan) and its assets (cash).
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Therefore, the Accounting Equation always remains in balance, which is a fundamental principle in the double-entry system of accounting.
So, the Accounting Equation is based on the Double-entry system of accounting.
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What is the accounting equation?
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