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Dual Aspect Concept in Accounting

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What is Dual Aspect Accounting?

Dual aspect accounting is a concept that suggests double entry of every business transaction while preparing a financial or accounting report. Also known as duality principle, dual aspect concept involves every transaction being recorded in debit and credit accounts.

In the Double Entry accounting system, every transaction has an equal and corresponding effect, i.e. it affects two accounts. Every financial transaction is recorded in two accounts. Transactions are recorded in the double-entry system as debits and credits. Because a debit in one account cancels out credit in another, all debits must equal all credits. The double-entry bookkeeping method standardized the accounting process and increased the quality of financial statements generated, allowing for better identification of mistakes. In the double-entry system of accounting, there are seven different types of accounts in which the accounts are classified. They are as follows: assets, liabilities, revenue, expenditure, equities, gains, losses. In this system of accounting, transactions are recorded in terms of debit and credit. 

Unlike the single entry system of accounting which recorded only one end of a transaction, like that of a sale; this system also records the other action which is that of receiving payment.

Forming the basis of double-entry accounting, this concept classifies every transaction into two segments. These are explained below in detail.

  • Debit: When a transaction is classified in this double entry system, debit refers to the increase in assets and expenses. Additionally, it also refers to decrease in liabilities, income and equity.

  • Credit: Credit in dual aspect concept in accounting refers to decrease in assets and expenses. Furthermore, it also indicates any increase in liabilities, income and equity due to a transaction.

Real-World Example of Double-entry System

A bakery purchases a number of refrigerated delivery trucks on credit; the total credit purchase was Rs.250,000. These new trucks will be used in business operations and will not be sold for at least 10 years, i.e. their estimated useful life.

For credit purchase of new trucks, transactions must be recorded in their respective accounts. A debit to the asset account for the amount of the purchase (RS. 250,000) will be made since the company has acquired more assets. A credit entry of RS. 250,000 will be made to notes payable to account for the credit purchase. The asset balance is increased by the debit entry, and the notes payable liability balance is increased by the same amount by the credit entry.

Double entries are also possible within the same class. If the bakery made a cash transaction, in this scenario a cash account would be credited and the asset account would be debited, resulting in a balance.

Features of Dual Aspect Accounting

To understand dual aspect accounting properly, it is important to note that every transaction has these following features.

  • It simultaneously decreases an asset, while increasing another.

  • Similarly, it also decreases a specific liability, while increasing another.

  • There is a simultaneous increase of both, an asset and its related liability.

  • Contrarily, in the case of decrease of an asset, related liability is also decreased.

Dual Aspect Accounting Equation

A vital aspect of overall financial accounting definition, dual aspect accounting features can be a little difficult to understand unless explained with its equation and relevant examples. According to this concept, the basic accounting equation is as follows.

A = E + L

where, A stands for asset

E stands for equity,

and L stands for liabilities.

In this given formula, assets represent both fixed and current assets. Furthermore, liabilities represent long term liabilities along with current liabilities.

Examples of Dual Aspect Accounting

As a practical field of study, it is vital for students to understand accounting concepts with examples since it offers enhanced clarity. A few examples are given below to clearly explain this concept.

1. Issuing An Invoice To A Customer: The first entry appears in its income statement indicating increase in sales. Additionally, its accounts receivable asset in the balance sheet is also increased, while change in income due to increase in sales are recorded in retained earnings. This is a part of the section of equity in a balance sheet.

2. Receiving An Invoice From A Supplier: First portion of this entry records increase of expense or asset account. This can appear either in the income statement for an expense or in the balance sheet  for assets. Second portion of this entry increases accounts payable liability. Furthermore, this change in income recorded due to an expense appears in retained earnings as a part of the equity section in a balance sheet.

While these examples demonstrate a scenario, to explain accounting concepts to students illustrative examples must also be presented.

Consider a startup by Mr. X which has a financial asset of Rs.1 lakh. In this situation, double-entry accounting shows the following.

Assets =

Liabilities 

Owner’s equity

Cash + =

0

Capital

Rs.1,00,000

0

10,000


This entry changes when Mr. X purchases goods of worth Rs. 20,000 from another firm on credit. After this purchase, this accounting looks as follows.

Assets = 

Liabilities

Owner’s equity

Cash + Purchases =

Creditors +

Capital

Rs.1,00,000 =

0

Rs.20,000

Rs1,00,000 + Rs.20,000 =

Rs.20,000 +

Rs.1,00,000


Related Types of Accounting Concepts

Along with dual aspect accounting, there are quite a few types of accounting concepts which are vital for a better understanding of the subject. Some of these crucial concepts are explained below.

1. Accrual Concept: This concept suggests that revenue should be recognised and recorded on its realisation rather than that of its actual receipt. Additionally related costs are not left till payment, but recorded when it is incurred. This concept requires proper adjustment and citation while preparing income statements of revenue and costs.

2. Business Entity Concept: The main idea behind this concept is that a business in itself is separate from all its stakeholders or capital investors. It stresses the importance of maintaining proper transactional records of a firm. Here a proprietor is considered to be the creditor.

3. Cost Concept: This concept directs recording of fixed assets at their original cost when they were acquired. This price which is paid to acquire an asset is the relevant cost. This forms the basis of every accounting of this asset that is to follow.

4. Going Concern Concept: A vital concept dealing with the longevity of a business venture, this focuses on profitability of a firm. Consequently, any business enterprise which is making profit can continue with their venture and are known as going concerns. Here, accounting reports are recorded as going concerns, similar to that against liquidation.

5. Money Measurement Concept: A simple accounting concept, it suggests that every transaction which involves liquid cash should be recorded while bookkeeping. Vitally, this concept requires every transaction to be recorded only in monetary terms.

Along with this concept of dual aspect accounting there are many other accounting concepts which students must understand in detail for their 10 + 2 curriculum. To this effect, they can also refer to other study materials offered by us, along with the option of attending live online classes for better understanding. Try Vedantu’s app for a single platform functionality.

FAQs on Dual Aspect Concept in Accounting

1. What is an accounting concept?

Accounting concepts are basic rules of accounting which must be followed while preparing a financial statement. Accounting Concepts are based on assumptions. It lays the foundation for every organisation. Accounts are prepared and transactions are recorded on the basis of these concepts. Accounting concepts state that business and its owner are separate entities. Some of the vital accounting concepts are dual aspect concept, cost concept, money measurement concept, going concern concept, dual aspect, realization concept, matching of costs and revenues concept, business entity, accounting period concept, historical cost concept, etc.

2. What is the dual aspect concept of accounting?

Dual aspect concept, also known as duality principle in accounting, states that every business transaction should have double entry in the bookkeeping system, dual aspect concept records every transaction under two basic classifications of credit and debit. This concept states that a transaction is recorded in the books of accounts when the transaction has two dual aspects. Every credit has an equal debit, i.e.,


Asset= Liabilities + Owners Equity, it is known as Accounting Equation. Assets are the resources that can be easily liquified into cash, liabilities include creditors, loans from banks, loans from financial institutions, bills payables, outstanding liabilities.

3. How are these concepts helpful ?

These accounting concepts are important in calculating the actual value of the business. Preparation of accounts depends on these accounting concepts as it serves as basic guidelines on which the accounts are prepared . It also helps in maintaining business records efficiently. Comparing the results of the firm with that of others becomes easy. It facilitates better decision making. It acts as the proof or evidence in the legal matters and it helps in taxation matters. These concepts as a basis for providing information to the related firms and parties.

4. Why are revenues recorded only when they are actually received?

Yes, According to the realisation concept, when the revenue is realised either from the sale of goods or from providing/rendering  services, the transaction is recorded in the books of accounts. It is based on an accrual system. According to this system, revenues and expenses are identified with a specific period of time whether they received or paid in cash or not. But under the cash system, the revenues and expenses are recorded only if they are actually received or paid irrespective of the accounting period to which they belong.

5. What is the accounting period concept?

Accounting period refers to a specific period of time that an organisation chooses to complete an accounting cycle. The accounting period is chosen depending on the needs of the organisation. This chosen time period is referred to as the accounting period. The selected accounting period is always mentioned in the books of accounts while recording the transactions. It also helps to know the actual position of assets and liabilities at the end of the accounting period. It helps to record transactions in an effective manner and it assists in comparing the performance of the organisation which is the source of information for the stakeholders.