What principle underlies the double-entry accounting system?

The double-entry accounting system is founded on the principle that each transaction affects at least two accounts. This system ensures that every financial event is recorded in a way that maintains the accounting equation: Assets = Liabilities + Equity. When a transaction occurs, it is recorded with both a debit and a credit entry, reflecting the dual impact on the accounts involved. For example, if a business purchases inventory with cash, it will decrease the cash account (credit) and increase the inventory account (debit). This method not only helps in accurate financial reporting but also facilitates error detection, as the total debits must always equal total credits, thereby maintaining the balance in the accounting records. This fundamental aspect of double-entry accounting enhances the reliability and integrity of financial statements.