Accounting Equation – Minimum Accounts Affected

Practice Question

Intro to Financial Accounting
Financial Statements and Business Decisions
Accounting Equation
MCQs

The accounting equation states that every transaction must affect at least how many accounts?

  1. One
  2. Two
  3. Three
  4. Depends on the type of transaction
Answer +
Correct Answer: B
Explanation +

The accounting equation (Assets = Liabilities + Shareholder’s Equity) must remain in balance after every transaction. To ensure this balance, each transaction must affect at least two accounts. For example:

If a business purchases equipment with cash, it increases one asset (equipment) and decreases another (cash), impacting two accounts.

This dual effect is foundational to the double-entry accounting system and ensures integrity in financial records.