What is Dual Aspect Accounting?
Dual aspect accounting is a concept which 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.
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 in 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
What is An Accounting Concept?
Accounting concepts are basic rules of accounting which must be followed while preparing a financial statement. Some of the vital accounting concepts are dual aspect concept, cost concept, money measurement concept, going concern concept, etc.
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 bookkeeping. Forming the basis of double entry bookkeeping system, dual aspect concept records every transaction under two basic classifications of credit and debit.