Dual Aspect Concept - meaning, definition with examples
Dual Aspect Concept - Every Transaction has two effects: Debit and Credit. Both are opposite and equal also known as Double Entry System. know more details
Dual Aspect Concept - Accounting is a language of the business. Financial statements prepared by the accountant communicate Financial information to the various stakeholders for decision-making purpose. Therefore, it is important that Financial statements prepared by different organizations should be prepared on uniform basis. Also there should be consistency over a period of time in the preparation of these Financial statements. If every accountant starts following his own norms and notions for accounting of different items then there will be an utter confusion.
Every Transaction has two effects: Debit and Credit. Both are opposite and equal also known as Double Entry System. Accounting equation has been derived on the basis of dual aspect concept as under:
Or, Equity + Long Term Liabilities + Current Liabilities = Fixed Assets + Current Assets
Or, Equity + Long Term Liabilities = Fixed Assets + (Current Assets – Current Liabilities)
Or, Equity = Fixed Assets + Working Capital – Long Term Liabilities
Whatever is received as funds is either expended (Expenses) – Debited to Profit & Loss Account
Or Lost – Losses are transferred to Capital Account
Or saved – Shown on the Assets side of the Balance Sheet
Therefore, Capital + Income/Profits + Liabilities = Expenses + Net Loss + Assets Or, Capital + Income – Expenses + Net Profits = Assets – Liabilities
Since the net profit / loss is transferred to equity, the net effect is