Consulting Case Interview Practice Questions

Answer - B - The accounting equation of the double-entry accounting system is Assets = Liabilities + Owner’s Equity. The double-entry accounting method is based on this equation. The double-entry accounting system requires that for every transaction, one or more accounts are credited and one or more accounts are debited.

Key Takeaway: The double-entry accounting method is based on the premise that a company’s assets are equal to the liabilities and owner’s equity. Assets are increased by debiting the account, while liabilities and owner’s equity are increased by crediting the account. Each transaction results in at least one debit and one credit. When totaled, credits and debits will be equal, ensuring not only accuracy in the accounting of each transaction, but the identification of any mathematical errors, as well.