Accounting principles and Policies
Dual Aspects Concept:
This is a basic concept of accounting. Accounting to this concept, every business transactions has dual effect-
For example, suppose Mr. A purchases some goods worth Rs. 1000 in cash. In this business transaction, Mr. A gets the goods of worth Rs. 1000, but on the other hand, he lost the cash of Rs. 1000. So, Goods Account and Cash Account shall be affected by this transaction.
Thus in every business transaction, one aspect represents the assets or expenses other represents the claim or income and these two expects are always equal. This approach generates the concept of accounting equation, which can be summarized as below:
Liabilities = Assets
External Liabilities + Capital = Assets
For example, if A starts a business with a capital of Rs. 1,00,000. There are no aspects of this transaction. On the one hand, the business has asset (in the form of cash) of Rs. 1,00,000, while on the other hand the business has to pay to the proprietor a sum of Rs. 1,00,000, which is known as proprietor’s capital. This expression can be shown in the form of accounting equation as follows:In the example given above, if the furniture worth Rs. 50,000 is purchased, the situation will be as follows:
Capital (Rs. 1,00,000) = Cash (Rs. 50,000) + Furniture (Rs. 50,000)
Thus, this concept develops a relationship between liabilities and assets. The Accounting Equation can be technically started as “for every debit, there is an equivalent credit”. As a matter of fact, the entire Double Entry System of Book-Keeping is based on this concept.
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