Financial Accounting

Dual Aspect Concept – The Foundation of Bookkeeping


The Dual Aspect Concept is the core of double-entry bookkeeping. This concept is the outcome of the entity concept.

From the accounting point of view, the business is a separate entity; hence, the amount invested by the owner of the business does not only represent the assets and capital of the business, but it also represents the indebtedness of the business towards the owner.

It provides the very basis of recording business transactions in the books of accounts. The Dual Aspect Concept assumes that every transaction has two-sided effects, i.e. it affects two accounts on their respective opposite sides. Therefore, the transaction should be recorded in two places.

It means, both aspects of the transaction must be recorded in the books of accounts. For example, an asset purchased for cash has two aspects which are

(I) Giving of cash

(ii) Receiving of goods

The concept of duality is commonly expressed in terms of the fundamental accounting equation:

Assets = Liabilities + Capital

Dual Aspect Concept - The Foundation of Bookkeeping

Aspects in Dual Aspect Concept

The above accounting equation states that the assets of a business are always equal to the claims of owner/owners and the outsiders. This claim is also termed as capital or owner’s equity and that of outsiders, as liabilities or creditors’ equity.

According to this concept, for every debit, there is a correspondence credit and vice versa. Every transaction has two aspects. This concept is also sometimes termed as duality in accounting.

The two aspects of each transaction may be represented by:

  1. An increase in asset and decrease in other assets
  2. An increase in asset and simultaneously increase in liability
  3. A decrease in asset and increase in another asset
  4. A decrease in asset and a decrease in liability

Similarly, there may be:

  1. Decreases in one liability, decrease in other liability
  2. Increase in one liability increases in another asset
  3. The decrease in liability increases in other liability
  4. A decrease in liability and a decrease in an asset

Use of Dual Aspect Concept

The dual aspect concept is based on the principle of double-entry, which states that each debit has a matching credit. This notion simplifies the creation of the trial balance, which helps an accountant to identify recording technique problems.

Additionally, it assists a business in determining profit or loss. Capital can be computed both at the start and conclusion of the accounting period. It is vital for every business to record transactions using the dual aspect principle.

Example of Dual Aspect Concept

Mr Smith starts a business with a capital of $20,000 in cash. Here the capital of the business will be equal to the assets of the business. The equation will be:

Capital = Assets (Cash)

$20,000 = $20,000

In the above scenario, let’s assume that the business borrows $5,000. It will increase the cash or bank balance by $5,000. But at the same time, it would also create a liability of $5,000. Hence, the equation will become as follows:

Capital = Assets

Capital ($20,000) + Loan ($5,000) = Cash from capital ($20,000)+ Cash from loan ($5000)

This equation will always be tallied unless there is a clerical mistake in the bookkeeping process by the accountant.


Each business transaction, according to the Dual Aspect Concept, has a dual or two-way influence. This means that when a company transaction is documented in the books of accounts, it must involve a minimum of two accounts. This is the underlying idea of the Double Entry System of accounting.

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