what is the purpose of the double entry system 
the accounting equation is a concise expression of the complex expanded and multi item display of a balance sheet essentially the representation equates all uses of capital assets to all sources of capital where debt capital leads to liabilities and equity capital leads to shareholders equity for a company keeping accurate accounts every business transaction will be represented in at least two of its accounts for instance if a business takes a loan from a bank the borrowed money will be reflected in its balance sheet as both an increase in the company s assets and an increase in its loan liability if a business buys raw materials and pays in cash it will result in an increase in the company s inventory an asset while reducing cash capital another asset because there are two or more accounts affected by every transaction carried out by a company the accounting system is referred to as double entry accounting the double entry practice ensures that the accounting equation always remains balanced meaning that the left side value of the equation will always match the right side value in other words the total amount of all assets will always equal the sum of liabilities and shareholders equity the global adherence to the double entry accounting system makes the account keeping and tallying processes more standardized and foolproof the accounting equation ensures that all entries in the books and records are vetted and a verifiable relationship exists between each liability or expense and its corresponding source or between each item of income or asset and its source limits of the accounting equationalthough the balance sheet always balances out the accounting equation can t tell investors how well a company is performing investors must interpret the numbers and decide for themselves whether the company has too many or too few liabilities not enough assets or perhaps too many assets or whether its financing is sufficient to ensure its long term growth real world example of the accounting equationbelow is a portion of exxon mobil corp s xom balance sheet in millions as of march 31 2024 the accounting equation is calculated as follows 164 866 total liabilities 213 052 equity 377 918 which equals the total assets for the period 