Federal Nursing Home Administrator Practice Exam

What does a double entry transaction require?

1. Two credits

2. Two debits

3. One debit and one credit

4. Two different accounts only

The correct answer is: One debit and one credit

A double entry transaction requires one debit and one credit. This principle is fundamental to accounting and ensures that the accounting equation remains balanced. In double-entry bookkeeping, every financial transaction affects at least two accounts: one account is debited, which reflects an increase in assets or expenses, or a decrease in liabilities or equity; and the other account is credited, indicating a decrease in assets or expenses or an increase in liabilities or equity. This system helps maintain accuracy in financial records and provides an effective way to track all financial activity within an organization. The requirement for one debit and one credit reinforces the concept of duality in financial transactions, ensuring that every entry has a corresponding and opposite effect in another account. By adhering to this structure, accountants can minimize errors and produce reliable financial statements.