Question

Which statement is correct regarding entering transactions into the accounting equation?

a) It only involves assets.
b) It affects only liabilities.
c) It always impacts equity.
d) It follows double-entry accounting principles.

Answer 1

The correct statement regarding entering transactions into the accounting equation is that it follows double-entry accounting principles.

Step-by-step explanation:

The correct statement regarding entering transactions into the accounting equation is option d) It follows double-entry accounting principles.

Double-entry accounting is a system in which every financial transaction has equal and opposite impacts on both sides of the accounting equation, ensuring that it remains in balance. It means that both sides of the equation, assets and liabilities, are affected whenever a transaction is recorded.

For example, when a company pays cash to purchase inventory, not only does the asset (inventory) increase, but the liability (Cash) decreases. This is an example of how transactions affect both assets and liabilities, following the principles of double-entry accounting.