Dual aspect concept in accounting

What is the Dual aspect concept in Accounting

ACCOUNTING

Dual aspect concept in Accounting-By this post, we shall study in detail the important Dual aspect concept out of 12 various accounting concepts on which accounting is based. If you have a business and making accounting records then you should know about these important Dual aspect concepts which can help you to finalize your financial statement according to this concept.

What is the Dual aspect concept?

The dual aspect concept tells that every transaction has a dual effect means an entry of a transaction will be recorded in accounting as per the double-entry system. For instance, a buyer pays cash in return for a purchased item while the seller gains cash in return for the sold item. This makes a transaction dual in nature, affecting two accounts simultaneously, and hence it should be registered likewise.

How can you explain the Dual aspect concept?

This concept is the core of double-entry book-keeping. So every transaction will show in two places. There are many aspects related to the dual aspect concept that can be recorded in books of accounts. The concept is derived from the accounting equation, which states that Asset = Liability + Equity

Every transaction or event has two aspects which are as follow-

  • (1) It increases one Asset and decreases another Asset;
  • (2) It increases an Asset and simultaneously increases Liability
  • (3) It decreases one Asset, increases another Asset;
  • (4) It decreases one Asset, decreases Liability. Alternatively:
  • (5) It increases one Liability, decreases other Liability;
  • (6) It increases a Liability, increases an Asset;
  • (7) It decreases Liability, increases other Liability;
  • (8) It decreases Liability, decreases an Asset.

Example of Dual aspect concept?

Here we will understand the dual aspect concept with examples

for example

BALANCE SHEET

LiabilitiesAmountAssetsAmount
Capital1,50,000₹Machinery2,00,000₹
Bank Loan75,000₹Cash1,00,000₹
Other Loan75,000₹ 
Total3,00,000₹Total3,00,000₹

Transactions:

  1. A new machine is purchased paying 50,000₹ in cash.
  2. A new machine is purchased for 50,000₹ on credit, cash is to be paid later on.
  3. Cash paid to repay bank loan to the extent of 50,000₹.
  4. Raised bank loan of 50,000₹ to pay off other loans.

Effect of the Transactions according to the dual aspect concept

The effect in the balance sheet after considering transaction 1

Increase in machine value and decrease in cash balance by 50,000₹.

LiabilitiesAmountAssetsAmount
Capital1,50,000₹Machinery2,50,000₹
Bank Loan75,000₹Cash50,000₹
Other Loan75,000₹ 
Total3,00,000₹Total3,00,000₹

The effect in the balance sheet after considering transaction 2

Increase in machine value and increase in Creditors by 50,000₹.

LiabilitiesAmountAssetsAmount
Capital1,50,000₹Machinery2,50,000₹
Bank Loan75,000₹Cash1,00,000₹
Creditors50,000₹
Other Loan75,000₹ 
Total3,50,000₹Total3,50,000₹

The effect in the balance sheet after considering transaction 3

Decrease in bank loans and decrease in cash by 50,000₹.

LiabilitiesAmountAssetsAmount
Capital1,50,000₹Machinery2,00,000₹
Bank Loan25,000₹Cash50,000₹
Other Loan75,000₹ 
Total2,50,000₹Total2,50,000₹

The effect in the balance sheet after considering transaction 4

Increase in bank loans and decrease in other loans by 50,000₹.

LiabilitiesAmountAssetsAmount
Capital1,50,000₹Machinery2,00,000₹
Bank Loan1,25,000₹Cash1,00,000₹
Other Loan25,000₹ 
Total3,00,000₹Total3,00,000₹

What is the importance of the Dual aspect concepts ?

The Dual aspect concept is important because it is perfect in making final accounts-

  1. Used by most prominent businesses and all publicly-traded companies.
  2. A large volume of transactions can be recorded accurately.
  3. Mistakes are easy to find and resolve.
  4. Auditing is easier.
  5. Book-keeping is slow. You need to hire a professional to ensure accuracy.

How does the Dual aspect concept work?

The dual aspect concept works perfectly in making the financial statement of any business and enterprise. Because this concept declares that every business transaction requires recordation in two different accounts. This concept work on the basis of double-entry accounting, which is required by all accounting frameworks in order to produce reliable financial statements. This concept work as per the accounting equation, which states that Asset = Liability + Equity and the effects happen to like these-

  • (1) It increases one Asset and decreases another Asset;
  • (2) It increases an Asset and simultaneously increases Liability
  • (3) It decreases one Asset, increases another Asset;
  • (4) It decreases one Asset, decreases Liability. Alternatively:
  • (5) It increases one Liability, decreases other Liability;
  • (6) It increases a Liability, increases an Asset;
  • (7) It decreases Liability, increases other Liability;
  • (8) It decreases Liability, decreases an Asset.

How is the Dual aspect different from single and multiple aspects in accounting?

Dual Entry SystemSingle Entry System Multiple Entry System
Used by most prominent businesses and all publicly-traded companies.Used by individuals and small businesses.Used by multinational corporations.
Mistakes are easy to find and resolve.Mistakes are hard to find and resolve.Mistakes are resolved efficiently and quickly.
A large volume of transactions can be recorded accurately.Only a small number of transactions can be recorded accurately.An infinite number of transactions can be recorded with pinpoint accuracy.
Book-keeping is slow. You need to hire a professional to ensure accuracy.Book-keeping is easy and fast. You don’t need to hire a professional.Book-keeping is extremely slow. You need to hire a team of professional accountants.
Auditing is easier.Auditing is difficult.Auditing is easier.

Faqs related to Dual aspect concept

  1. What is the dual aspect concept equation?

    Assets= liability + Equity Capital

  2. What is the dual effect in accounting?

    In respect to the Dual Aspect Concept, each business transaction has a dual or a two-way effect. This implies that a particular business transaction involves a minimum of two accounts when recorded in the books of accounts. This principle is the foundation of the Double Entry System of accounting.

  3. Is Dual aspect Concept Applicable To All Accounting Transactions?

    This concept is only applicable in cases where there are no income or expenses of a non-recurring nature, like dividends. No consideration is given in calculating net income (the total amount earned by the company during the accounting period) for dividends paid.

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