Dual aspect concept explained

The dual aspect concept is the double entry principle. Also known as the duality concept. This principle guides how transactions are posted to the accounts. It introduces the terms debit and credit and therefore helps accountants and bookkeepers to decide on how to post events into the books of accounts. This article throws more light into it.

1. What's dual aspect concept

The dual aspect concept states that every business transaction must pass through two accounts. One account is debited and the other is credited. The principle explains how transactions and other events affect the accounting equation and of course the balance sheet of an entity. At any time, a business event can either increase or decrease one or more elements of the accounting equation.

In addition, the duality concept is tested for accuracy by preparing a trial balance. A difference in the total of the trial balance indicates that the data entry staff do not carry out his/her task properly. Dual aspect guides the principle of double entry or we can say that they are synonyms. However, single entry is a different ball game and it is not a scientific way of dealing with daily business transactions.

The single entry principle is only applied when a business has no reliable record to prepare its financial statements. Therefore, every question and other information will be requested from the business owner to prepare a profit statement as well as a balance sheet. The profit statement is based on the entity's opening and closing capital.

Single entry is converted to double entry so as to encourage a business to practice the double entry principle for its transactions. Therefore, aiding accurate recording of transactions and the preparation of financial reports.

2. How the duality principle is applied

The principle is applied to the book of accounts of a company. Generally, a business should have a chart of accounts that relates to the daily transactions that occur within it and third parties. When a transaction happens, an account is debited and another is credited. These accounts form parts of the accounting equation.

The accounting equation formula is Assets = Liability + Equity. Equity is made up of share capital, premium, and profit or loss. To get profit or loss, business expenses are deducted from business income. Therefore, the five elements of financial statements are usually affected by the dual aspect concept.

When a transaction occurs it can affect the elements of financial statements in the following ways:

Increase the affected elements
Decrease the affected elements
Increase one element and decrease another element.

For example, a sale of goods for cash will increase income (sales account) and increase assets (cash account). However, a purchase of goods for cash will increase expenses (purchases account) and reduce assets (cash account). More so, a repayment of loan via bank will decrease liability (loan account) and asset (bank account).

3. Dual aspect concept and the double entry principle

The double entry principle complies with the dual aspect concept. The principle states that for every debit entry in an account, another account is credited. The fact that two accounts are involved in the principle implies the duality concept. Therefore, it covers the posting of transactions to their accounts, testing accuracy via trial balance and preparing a financial statement.