Why does every accounting transaction have two effects?
Accounting is governed by the balance sheet equation, which shows the equality of assets with liabilities plus shareholders' equity:
Assets = Liabilities + Shareholders' Equity
To maintain this equality, it is necessary to report every event and transaction in a dual manner. If a transaction results in an increase on the left-hand side (Assets), dual transactions recording requires that one of the following must occur to maintain the balance sheet equation: decrease another asset; increase a liability; increase shareholders' equity. Similarly, if a transaction results in an increase in a Liability account, then one of the following must occur to maintain the balance sheet equation: decrease another liability; decrease shareholders' equity; increase an asset.
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