What is dual aspect concept in accounting & finance?

Finance ManagementAccountingAcademic Content

Every transaction of a firm is recorded in two different accounts. This relates to double entry bookkeeping. That means dual aspects concept tells every transaction affects the business in at least two aspects which are equal and opposite in nature.

In a single entry system, only one side of transaction are made. For example, if a sale is made to the customer only sale revenue is recorded, other side is not recorded (receipt/credit to the customer is not recorded). But, in double entry, both sale revenue and receipt/credit to the customer are recorded.

Accounting equation −assets = liabilities + Equity

Auditors will accept dual aspect concept. If a firm want its finance to be audited, the auditors will give their opinions on firm financial statements. This will happen, only if the firm must accept dual aspect concept and maintain its accounting records using double entry.

Example

If a person owns and operates a store, he has recorded his monthly transactions as follows −

1) Payment of salary to staff 2500
2) Sales of goods on cash 4800
3) Sales of goods on credit 8000
4) Receipts from credit customers 5600
5) Purchases of goods for cash 13000
6) Utility expenses – unpaid 1500

The above transactions are recorded as follows in double entry system −

Account titleEffectDebit (Rs)Credit (Rs)
Salary expenses Cash at bankIncrease in expense Decrease in assets25002500
Cash in hand Sales revenueIncreases in assets Increases in income48004800
Receivables Sales revenueIncrease in assets Decrease in income80008000
Cash at bank ReceivablesIncrease in asset Decrease in asset56005600
Purchases Cash at bankIncrease in expenses Decrease in assets1300013000
Utility expenses Accrued expensesIncrease in expenses Decrease in asset15001500
raja
Published on 12-Aug-2020 14:34:05
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