Which of the following describes the double-entry system?

The double-entry system is fundamentally based on the principle that every financial transaction has a dual effect on the accounting equation, which comprises assets, liabilities, and equity. When a transaction occurs, it is recorded in at least two accounts—one account will be debited, and another will be credited with an equal amount. This method ensures that the accounting equation remains balanced, demonstrating that for every increase in one account, there is an equal decrease in another, or vice versa.

This dual effect is a cornerstone of accurate financial reporting and helps maintain the integrity of financial statements. It provides a comprehensive view of a company's financial position and helps ensure that errors and discrepancies can be identified and corrected through cross-referencing accounts.

Other options describe aspects that are not characteristic of the double-entry system. For example, a system that records transactions in a single account does not reflect the dual impact of transactions and would not provide accurate financial information. Similarly, closing accounts at year-end is a process associated with accounting cycles but does not define the double-entry system itself. Lastly, limiting the system to cash transactions contradicts the basic principle of double-entry accounting, which applies to all types of transactions, not just cash.