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Ledger accounting and double-entry bookkeeping

1.3 Duality concept

Each transaction that an entity enters into affects the financial statements in two
ways.

For example, an entity may buy a vehicle for cash. The two effects on the entity 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 entity.

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.

1.4 The business entity concept

The business entity concept states that transactions associated with an entity must
be separately recorded from those of its owner. Doing so requires the use of
separate accounting records for the entity that completely excludes the assets and
liabilities of the owner. This is an important concept to keep in mind when you start
working through the accounting entries for an entity.

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