What is the Dual Aspect Concept?

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How Does Dual Aspect Concept Work?

The dual aspect concept in accounting lays the foundation on which every transaction is recorded in the books of accounts in most organizations. In simple words, the dual aspect concept notices how every single transaction ends up affecting two accounts. For example, A takes a loan of $100 from his friend B through internet banking.

Key Takeaways

  • The Dual Aspect Concept states that every transaction should be recorded in two different accounts to show the funds’ accurate movementThe concept acts as the foundation for double-entryDouble-entryThe double-entry accounting system refers to the double effect of every journal entry. It is based on the dual aspect i.e. Debit and Credit and this principle states that for every debit, there must be an equal and opposite credit.read more bookkeeping. If you want to get your financial statements audited, you must use a dual-entry accounting system.Apart from double-entry, we have single-entry bookkeeping and multiple-entry bookkeepingBookkeepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more in accounting.

The two accounts getting affected here are the bank accounts of A and B. After the transaction, $100 will get deducted from B’s bank account while A’s bank account will gain $100. Hence, the dual aspect concept requires transactions to be recorded in two different accounts. The dual aspect concept forms the basis of double-entry book-keeping in accounting. In double-entry bookkeeping, each transaction will result in one account gaining something while the other losing something.

All publicly traded companiesPublicly Traded CompaniesPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.read more and most private companies use double-entry accounting. It is the only format most auditors accept. If a company’s management wants an auditor to audit its financial statements, the management has to use double-entry accounting.

Example of Dual Aspect Concept of Accounting

Let’s understand this concept in detail using another example.

Let’s say you buy a google play card worth $100 by paying $100. You will only debit $100 from your accounting books in a single-entry system as it is not based on the dual aspect concept. After debiting $100 from your account in the dual aspect concept, you will also credit $100 to your assets account like a $100 Google Play card.

It verifies the transaction by showing two sides of the coin. One is the side where money has been debited from your bank account, and the other is the side where the $100 Google Play.

Single, Double and Multiple Entry in Accounting

Single-Entry in Accounting

Although the dual aspect concept is superior, it takes a lot more time and is much more complicated. It is why small organizations and individuals still use single-entry accounting. As we explained earlier, inThe Single Entry System is an accounting approach under which every accounting transaction is recorded with only a single entry towards the results of the business enterprise, shown in the statement of income of the company.read more single-entrySingle-entryThe Single Entry System is an accounting approach under which every accounting transaction is recorded with only a single entry towards the results of the business enterprise, shown in the statement of income of the company.read more, we only consider one aspect of a transaction. The recorded entry reflects either a debit or a credit record.

Double-Entry Book-Keeping

The dual aspect concept is the building block for double-entry bookkeeping. Double-entry is based on the principle that an organization’s assets are equal to its liabilities and owner’s equity. Owner’s equity is the capital sources for funding the business lending by the business’s owner. It requires every transaction to be debited and credited so that the balance sheet calculations reflect the accounting equationAccounting EquationAccounting Equation is the primary accounting principle stating that a business’s total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more below –

Assets = liabilities + Owner’s equity

Double-entry is required for all publicly traded companies. It is because annual reports of publicly traded companies must contain audited financial statements formed using double-entry booking.

Multi-Entry in Accounting

Some companies use more than two accounts to keep track of their finances. This adds more details and complexity. It takes much more time than single-entry or even double-entry accounting.

Single-Entry vs Dual-Entry vs Multi-Entry Accounting

Let us understand the different bookkeeping forms to see why the dual aspect concept is the most widely accepted norm for auditing purposes.

This has been a guide to What is Dual Aspect Concept in Accounting and its definition. Here we discuss how it works along with examples. You may also have a look at the following articles to learn more –

  • Quality of ConformanceExpanded Accounting EquationDebit vs Credit in AccountingSteps in Accounting Process