What does the term "double entry system" refer to?

The term "double entry system" refers to the accounting method where each transaction is recorded in at least two different accounts. This approach ensures that the accounting equation (assets = liabilities + equity) always remains balanced. Each entry consists of a debit and a corresponding credit, meaning that for every financial transaction, there are equal and opposite effects recorded. This method provides a comprehensive view of a company’s financial position and reduces errors, as the total debits must equal the total credits.

In contrast, options that suggest recording transactions once or only tracking cash transactions do not accurately capture the essence of double entry accounting. The idea of recording transactions repeatedly is also not aligning with the principle of double entry, which focuses on the dual aspect of each transaction rather than redundancy in recording. Thus, the correct understanding of the double entry system is that it involves recording transactions twice to maintain balanced financial records.