Lessons · Accounting · every transaction has two sides
Every transaction touches at least two accounts
Money always comes from somewhere and goes somewhere, so every transaction changes at least two accounts, and the equation stays true afterwards.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
The owner asks where the cash went. If all you recorded was that cash fell by 3,000, you cannot answer. If you recorded that cash fell and equipment rose, the answer is on the page: it went into a computer.
How to think about it
For every transaction write two lines: what got bigger or smaller, and what got smaller or bigger to balance it. Then check the equation still holds.
Worked example
Buy a 3,000 computer with cash: Cash −3,000; Equipment +3,000One asset swapped for another. Total assets unchanged, equation untouched.
Borrow 5,000 from the bank: Cash +5,000; Bank loan +5,000An asset and a liability rise together. Both sides of the equation go up by 5,000.
Repay 1,000 of the loan: Cash −1,000; Bank loan −1,000Both sides go down by 1,000. The equation still balances.
Your turn
Buy a 700 printer with cash. Write the name of the account that goes up by 700.
Cash −700; +700
Solve one, graded on the server
The trap
Recording only the cash side. It feels complete, because cash is what you watched move, and it leaves a hole that surfaces months later as an equation that does not balance.