State BPA Fundamental Accounting Practice Exam

The double-entry accounting system requires that every transaction must?

1. Be recorded by one accountant

2. Use at least two accounts

3. Involve cash transactions only

4. Be completed within one accounting period

The correct answer is: Use at least two accounts

The double-entry accounting system is based on the principle that every financial transaction affects at least two accounts. This fundamental concept is rooted in the accounting equation: Assets = Liabilities + Equity. When a transaction occurs, it will have a dual effect; for example, if a company makes a sale, it will increase both its cash (or accounts receivable) and its revenue accounts. This dual effect ensures that the accounting equation always remains balanced, promoting accuracy and integrity in financial reporting. Using at least two accounts incorporates the necessary checks and balances into the accounting records, which is vital for tracking financial activities and maintaining transparent financial statements. This system reduces the risk of errors and fraud by requiring that each entry has a corresponding and opposite entry, thus providing a complete picture of a company's financial position. Other options, such as requiring a transaction to involve cash only or needing to be recorded by one accountant, do not reflect the fundamental principles of double-entry accounting. Similarly, there is no requirement for transactions to be completed within one accounting period; transactions can span multiple periods, aligning with the accrual accounting principle. The emphasis here is on the dual entry requirement, which is the essence of the double-entry accounting framework.