3.1 The essential concepts behind double-entry accounting

Three concepts of accounting form the basis of the double-entry bookkeeping system of recording transactions and preparing financial accounts:

• The business entity concept:

The business entity concept states that a business is separate from the owner(s) of the business. You were introduced to this concept in Week 1.

• The accounting equation:

The accounting equation, for any business, states: Assets = Capital + Liabilities. You were introduced to the equation in Week 2.

• The duality concept:

The duality concept means that every transaction has two effects. This is a core concept you will learn about this week.