Explain the term 'double-entry accounting'.

Double-entry accounting is a fundamental concept in accounting that ensures the accuracy and integrity of financial statements by requiring that every financial transaction impacts at least two accounts. This system is based on the accounting equation, which states that assets = liabilities + equity. When a transaction occurs, it is recorded in at least two accounts: one account is debited and another is credited, maintaining the balance within the accounting equation.

For example, if a business makes a sale, it will increase its cash account (an asset) and also increase its revenue (which affects equity). By using double-entry accounting, businesses can track their financial positions more accurately, as the dual effect of transactions helps to minimize errors and provides a comprehensive view of a company's financial health.

The effectiveness of this method lies in its ability to ensure that the accounting equation remains balanced after each transaction. This balance is vital for preparing reliable financial statements and for conducting audits, as any discrepancies can be traced back to the source of the entries.