In real life when you pay money for anything or to anybody then you except something in return which may be a product or service from the person to who you have given your money and this is called give and take relationship of in other for every reaction there is an equal and opposite reaction. In case of the business company while maintaining books of accounts follow a similar process which is called dual aspect concept of accountancy where for every business transactions there are two side or aspect which implies that every transaction involves two parties or two accounts. In order to have a better understanding about the concept one should look at various features of dual aspect concept –
Dual Aspect Concept Characteristics
Mathematical Concept
In case of mathematics LHS always equals RHS and if they are not equal that means equation is wrong, dual aspect concept is quite similar to this concept of mathematics because according to this concept also both sides of transactions should match and if they do not match than transaction is not a valid transaction.
Two or More Accounts are involved
Another feature of dual aspect concept is that it affects two or more accounts because in any transaction if two or more accounts are not involved than it cannot be termed as dual aspect transaction. Hence for example if company has paid $10000 cash for purchasing of land and $5000 for payment of creditors than it will result in reduction of $15000 cash in the balance sheet of the company and increase in $10000 assets as company has purchased land and on liability side it will result in reduction of creditors by $5000, hence in this example three accounts are involved two from the asset side that is cash account and land account and one from the liability side that is creditors account.
Assets and Liabilities Should Match
Another important characteristic of dual aspect concept is that assets and liability side should always match after any transactions and if that does not happen then there is an error in that transaction. Hence for example if company has paid $15000 cash towards bank loan then it will result in decrease in the cash balance which is an asset and it will also result in decrease in bank loan which is a liability therefore after this transaction both asset and liability side will match as both asset and liability has decreased by $15000.
Fundamental Accounting Equation
Dual aspect concept is based on the fundamental accounting equation that is Assets = Liabilities + Capital and all transactions will affect this equation resulting in the matching of both sides of the equation after every transaction.
Compete Omission of Transaction
If there is a complete omission of transaction than dual aspect concept will not work because trial balance will tally even after omission of the transaction. In simple words, the dual aspect concept works only when all transactions are properly recorded by the company.
As one can see from the above features of dual aspect concept that it is a very important concept of accountancy any accounting student cannot afford to ignore this concept while analyzing various financial statements of the company.