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. 

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.

Author: Nazia Tabassum