Pittsburgh Institute of Mortuary Science Comprehensive Practice Test

The process for recording equal debits and credits for a single business transaction is known as double entry bookkeeping. This system is fundamental to modern accounting because it ensures that the accounting equation remains balanced, which states that assets must equal the sum of liabilities and equity. Each transaction affects at least two accounts; for instance, if a business purchases inventory with cash, one account for inventory is increased (debited) while another account for cash is decreased (credited) by the same amount. This dual effect not only helps in tracking financial status accurately but also facilitates the detection of errors and fraud by maintaining a systematic check and balance.

In contrast, the single entry accounting method does not rely on a dual system and only tracks cash inflows and outflows, leading to a less comprehensive overview of a business’s financial health. The trial balance is a report that lists the balances of all accounts in the general ledger at a specific point in time but does not describe the process of transaction recording. Transaction recording is a broader term and does not specify the dual nature of the entries made in double entry bookkeeping.