Acca financial Accounting (FA) Study Text ac ca (FA)

8 

Duality, double entry and the accounting equation 

Each transaction that a business enters into affects the financial statements in 

two ways. 

For example, a business buys a vehicle for cash. The two effects on the 

business are: 

1 

It has increased the vehicle assets it has at its disposal for generating 

income, and 

2 

There is a decrease in cash available to the business. 

To follow the rules of double entry bookkeeping, each time a transaction is 

recorded, both effects must be taken into account. These two effects are equal 

and opposite and, as such, the accounting equation will always be maintained. 

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