Frequently Asked Questions
What is the purpose of double-entry accounting in a law firm?
Double-entry accounting provides a systematic and accurate method of recording financial transactions. It ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced, helping law firms maintain accurate financial records and detect errors or discrepancies. This method enhances the reliability of financial statements and supports better financial decision-making.
How does double-entry accounting work?
In double-entry accounting, every financial transaction affects at least two accounts, with equal and opposite effects. For example, if a law firm receives $1,000 in cash for legal services, the cash account (asset) is debited for $1,000, and the revenue account (equity) is credited for $1,000. This ensures that the total debits equal the total credits, maintaining the balance in the accounting equation.
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