Question

Q: What is the rule of double-entry accounting? Explain and provide an example.

Answer 1

Rule of double entry accounting includes that every transaction has two effects. This double entry accounting helps in tallying the balance sheet. For example when sales are made on credit for $500, then this would impact two accounts. One of sales revenue which would increase with increase in sales and thus would be credited. Second impact would be on accounts receivable which be debited for increase as sales are made on account and thus there is future receivable from customer. Thus, double accounting rule implies that two different account would be increased or decreased which would help in tallying balance sheet.