Question

Does every transaction affect both sides of the accounting equation? Explain your answer.

a) Yes, because the accounting equation must always balance.
b) No, as some transactions only impact assets or liabilities.
c) Yes, but only if the transaction involves equity accounts.
d) No, as the accounting equation is not applicable to every business transaction.

Answer 1

Every transaction does affect both sides of the accounting equation because it is the basis of the double-entry bookkeeping system which ensures that the equation remains in balance.

Step-by-step explanation:

The question pertains to whether every transaction affects both sides of the accounting equation, which is Assets = Liabilities + Equity. The correct answer is: a) Yes, because the accounting equation must always balance. This is fundamental to double-entry bookkeeping, where each transaction is recorded in at least two accounts and the total debits must equal the total credits to keep the accounting equation in balance. Even if a transaction appears to affect only one side of the equation (e.g., purchasing equipment with cash), it still affects both assets (equipment goes up, cash goes down) with no net change to equity or liabilities.