Dual Aspect Concept in Accounting

 

Dual Aspect Concept in Accounting


  • According to the Dual Aspect Concept, each business transaction has a Dual or a two-way effect. 
  • This implies that a particular business transaction involves minimum two accounts when recorded in the books of accounts. 
  • This principle is the foundation of Double Entry System of accounting.
  • As per double entry accounting, it is known that any transaction of a business is recorded in two separate accounts. 
  • The dual aspect concept indicates that each transaction made by a business impacts the business in two different aspects which are equal and opposite in nature. 
  • This concept forms the basis of double-entry accounting and is used by all accounting frameworks for generating accurate and reliable financial statements. 

Dual Aspect Accounting

The accounting equation used in this concept is:

 Assets = Liabilities + Equity

  • The accounting equation is registered in the balance sheet, where the amount of the total assets should be equal to liabilities and equity of the firm.
  • Dual aspect concept is also described as the duality principle. 
  • This concept explains that if something is given, someone will receive it. This can be explained as whenever a transaction occurs, there is a two-sided effect, one is credit, and the other is debit for a similar amount. 

Example:


The concept of dual aspect can be explained with the help of some examples, which are as follows:

Mohan started a business with Rs 5,00,000 as a primary investment. This investment done by Mohan will have the following effects on the business.


  • It will increase the assets of the business by Rs 5,00,000. (Cash increases)
  • Capital of the business increases by Rs. 5,00,000.
  • Now, let’s say Mohan needed to purchase some goods for an amount of Rs 1,00,000, then this will have the following impact on accounting.
  • Purchasing goods increases assets (stock) of the business by Rs 1,00,000.
  • It reduces another asset of the business, i.e., cash is reduced by Rs.1,00,000.
  • Similarly, if Mohan has to buy equipment on credit for an amount of 10,00,000 from an equipment manufacturing company, then it will result in the following effect on the accounting.
  • Purchasing of new equipment on credit increases the asset base of the business by Rs. 10,00,00
  • Purchasing of new equipment on credit results in increasing the liabilities of the business (repay to creditors) by Rs. 10,00,000.


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