Dual Aspect Concept

Financial accounting is transaction based. Of course, we are only concerned with
transactions and events involving financial element. In every type of business there are
numerous transactions. If one takes a typical trading concern the main activity is purchase of
goods and their subsequent sale at a profit. This involves several transactions like purchase
of goods from several suppliers, sales to several customers on cash and credit, payment to
suppliers, collection from customers, payment of salaries to salesmen, purchase assistants,
payment of rent and taxes, electricity bills, etc. In each of the transactions listed above there
are two aspects to be recorded from the point of view of entity. For example, if there is
purchase of goods – it involves two aspects : one aspect is the receipt of goods and the other
aspect is the immediate payment of cash (in the case of cash purchase) or the acknowledgement
of debt to the supplier (in the case of credit purchase). The recognition of two aspects to every
transaction is known as dual aspect analysis. Modern financial accounting is based on such
recognition of the record of the two aspects of every transaction. The term ‘double entry
book-keeping has come into vogue because of every transaction two entires are made. One
entry consists of debit to one or more accounts and another entry consists of credit to one or
more accounts. However, the total amount debited always equals the total amount credited.
This balancing of debits and credits is the cornerstone of modern book-keeping.
How this accounting principle operates is illustrated with a few examples.
For example, when Manish, the proprietor of the business, starts his business with Cash
Rs.40,000 and Building Rs.50,000 then this fact is recorded at two places : Assets account and
Capital account. The capital of the business is equal to the assets of the business. This expression
can be shown in the form of equation as under :
Capital = Assets
Manish = Building + Cash
Rs.90,000 = Rs.50,000+Rs.40,000
If the business increases the assets by borrowing Rs.20,000, then the dual aspect of the
transaction affects the equation as under :
Capital + Liabilities = Assets
Manish + Loan = Building + Cash
Rs.90,000+Rs.20.000 = Rs.50,000+Rs.60,000