A fellow accounting student has difficulty understanding how the fundamental accounting equation stays in balance when an entry with one debit and two credits is recorded. Consider, for example, that a business bought equipment for $5,000, paid $2,000 in cash, and placed the remainder on account. This means that there are two credits and one debit—one debit and one credit on the left side of the equation and the other credit on the right side of the equation. In at least 100 words, explain to your fellow student how the equation stays in balance.

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business, at least two accounts should be affected I.e. both the debit side and the credit side should be equal. The Accounting Equation is