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 form 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.
Do you know the difference between assets and liabilities?
Dual Aspect Concept 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. 10,00,000
- Purchasing of new equipment on credit results in increasing the liabilities of the business (repay to creditors) by Rs. 10,00,000.
Additional Reading: List of Current Assets
The above mentioned explains in detail the dual aspect concept in accounting concepts with examples. To know more, stay tuned to BYJU’S.