Question

Recording of all business transactions is based on ________.

• A. Sales journal
• B. Accounting equation
• C. Formula
• D. Policies

Answer 1

The correct option is B Accounting equation

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. Hence, recording of all business transactions is based on accounting equation.