Double Entry Accounting Flashcards, test questions and answers

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What is Double Entry Accounting?

Double entry accounting is an important concept in modern accounting. It is a system of recording financial transactions in which each transaction is recorded twice, with both a debit and a credit. This system helps to ensure that all financial information is accurately recorded and tracked, which makes it easier to verify the accuracy of financial reports and audits.The double entry system requires two entries for each transaction: one as a debit and one as a credit. The total of the debits must equal the total of the credits in order for the books to balance. This means that whatever asset or liability was increased by one transaction must be offset by another asset or liability being decreased by an equal amount. For example, if you purchase inventory on your credit card, you would make two entriesone as a debit to inventory, increasing its value by the amount purchased; and one as a credit to accounts payable, increasing its value by the same amount. This system ensures that all assets are tracked accurately and prevents errors from occurring due to only recording some part of any given transaction. The double entry system also allows businesses to easily track changes in their assets over time so they can better analyze trends or potential problems before they become serious issues.Overall, double entry accounting is an essential tool for businesses because it ensures accurate tracking of assets and liabilities at all times while also providing useful insights into how those assets are changing over time.