Utah Contractor Practice Exam

How many accounts are affected by every accounting transaction?

1. Only one

2. Only two

3. Two or more

4. None

The correct answer is: Two or more

Every accounting transaction affects at least two accounts due to the double-entry system of accounting. This system ensures that for every debit entry made in one account, there is an equal and opposite credit entry made in another account, maintaining the accounting equation: Assets = Liabilities + Equity. For example, if a business purchases equipment for cash, the equipment account (an asset) is debited to increase its value, while the cash account (also an asset) is credited to decrease its cash balance. This dual impact ensures that the books balance at all times. In some transactions, more than two accounts may be affected. For instance, if a company receives a loan, it might involve accounts such as cash (an increase in assets), notes payable (an increase in liabilities), and potentially interest expense or other accounts depending on the nature of the transaction. Thus, the correct choice emphasizes that transactions inherently involve a minimum of two accounts, demonstrating the foundational principle of double-entry accounting.