Which Statement Is Correct Regarding Entering Transactions Into The Accounting Equation?

The correct choice is (D), as in Accounting Equation, the left side must be equal to credit side otherwise there are surely some errors, mistakes or frauds. Due to Dual Aspect Accounting Concept, every debit must be equal and opposite to credit. For every debit, there must be a credit in equal amount but in opposite side. Under such accounting system, an accounting journal entry must have atleast one debit account and one credit account with equal amount on opposite side. This basis is the foundation of Double Entry System. This system of Bookkeeping maintains a balance on both sides of accounting equation and such balance in accounts are shown in Balance Sheet which shows assets on left side or assets side while liabilities and shareholders’ equity on right side or liabilities & shareholders’ equity side.

The option (A) is wrong, as if one account is credited then other must be debited, otherwise, it goes against the fundamental principles of dual aspect accounting concept. This is not possible in Double Entry System.

The choice (B) is also not correct as when assets are increased, only liabilities are increased. This is not always the case i.e., when cash is invested into the business, owner’s equity and cash are also increased. The journal entry to record is to debit cash account and credit owner’s equity. Also, in case of additional investment made, then cash increased on debit side and owner’ s equity also increased on credit side of the accounting equation.

The option no. (C) is also incorrect as when one asset account is increased, then there are possibilities that owner’s equity or liabilities increased on credit side such as in case of initial investment made into the business or when and bank loan is taken then cash account is increased on debit side and bank loan account (liabilities) is increased on credit side.