Dual aspect concept of accounting

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Definition

The dual aspect concept of accounting relates to the idea of double entry bookkeeping. Every transaction affects the business in at least two aspects. These two aspects are equal and opposite in nature.

Explanation

To ensure a comprehensive and complete record, it is necessary to make two entries to record each transaction. This concept is based on the assumption that business never truly owns anything. Anything that it has (namely assets), it owes it either to outsiders (i.e., liabilities) or to the owner who is also a separate person (i.e., capital). Hence whenever a business gets anything, it must record both facts – an increase in asset and an increase in liability or capital.

Similarly, whenever anything leaves the business, there is reduction in asset and a corresponding reduction in either a liability or capital. This fact applies to all the transactions that a business may enter into at any stage of its existence.


There are two types of claims against the assets of the business, One of the owners and second of the creditors. So we can say that the total assets of a business are equal to its liabilities. Liabilities to owners are known as capital and liabilities to others are called liabilities. We can express this relationship between assets and liabilities in the form of the following equation which is also known as Accounting

Assets = Liabilities + Capital

This concept is based on the fact that if there is something given, someone else receives it. It can also be said that every time a transaction takes place there is always a two-sided effect. A transaction may affect either both sides or only on one side of the Accounting Equation. Thus according to this concept every transaction has two effects, one is debit and the other is credit for the same amount. It can be explained with the help of the following example:

Example

If a business is started by Mr. A with cash $100,000 it will have the following effects on Accounting Equation.

 

Assets                                   =Liabilities                               +Owner’s Equity
Cash     +                              =Capital
1,00,000                               =10,000

If Mr. A purchases goods as credit from Mr. B of $10,000 then the latest position of Accounting Equation will be:

Assets                                   =Liabilities                               +Owner’s Equity
Cash  +  Purchases              =Creditors                               +Capital
1,00,000                               =10,000
1,00,000  +  10,000             =10,000                                  +1,00,000

So every new transaction will affect the accounting equation. It should be kept in mind that both sides of this equation will always remain equal.

2 thoughts on “Dual aspect concept of accounting”

  1. hirago says:

    Wonderful explanation! Easy and understandable!

    1. rashidjaved says:

      Thanks for your appreciation. Kindly keep sharing with your friends.

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