The concept of dual aspect states the basis of recording the financial business transactions into the books of accounts of the entity where it mentions that every financial transaction shall impact two different accounts of the business i.e. every financial transaction shall be recorded in two accounts.
Explanation with example:
According to the dual aspect concept of accounting at least two accounts are affected when any financial transaction take place. So for every debit there is an equal and opposite credit. Say for example if we purchase machinery by paying through bank then the machinery A/c (Fixed asset) is increased i.e. debited and the bank A/c (Current asset) is decreased i.e. credited.
Another case can be when there is a debit in asset (increase in asset) there is a credit in liability (increase in liability). For example if a company Mobile incorporation purchases Air conditioner on credit basis (where the cash is to be paid on some later date) from AC incorporation who deals with Air conditioner, then in the books of Mobile incorporation Fixed assets account is debited and web incorporation A/c (Creditor) is debited whereas in the books of AC incorporation Mobile incorporation A/c (Debtor) is debited and sales A/c is credited.
Where the equation shows that the total assets of the business is always equal to the sum of total liabilities and owner’s capital (in case of company owner’s equity).
The advantages of dual aspect concept are as follows:
- It ensures that the transactions are recorded completely as it records both the aspects i.e. debit and credit.
- The arithmetical accuracy is ensured as with dual aspect concept.
- Mistakes and errors can be traced down easily because of the existence of this concept.
- It helps in knowing the financial position of the business as with the help of this concept balance sheet and income statement are prepared.
The disadvantages of dual aspect concept are as follows:
- It is complex in nature as it requires complete knowledge of accountancy.
- A businessman needs to hire a professional expert for recording the transactions as per dual aspect concept which increases salary cost.