Dual aspect concept is the core of double entry book-keeping. Every transaction or event has two aspects. i.e.
- It increases one asset and decreases other asset;
- It increases an asset and simultaneously increases liability;
- It decreases one asset , increases another asset;
- It decreases one asset, decreases a liability;
Alternatively
- It increases one liability , decreases other liability;
- It increases a liability , increase in asset;
- It decreases liability , increases other liability;
- It decreases liability , decreases an asset.
Example of dual aspect concept
BALANCE SHEET
| Liabilities | ₹ | Assets | ₹ |
| Capital | 2,50,000 | Land | 2,00,000 |
| Bank Loan | 75,000 | Machinery | 1,00,000 |
| Other Loan | 75,000 | Cash | 1,00,000 |
| 4,00,000 | 4,00,000 |
Transactions:
- A new machine is purchased paying ₹50,000 in cash.
- A new machine is purchased for ₹60,000 on credit , cash is to be paid later on.
- Cash paid to repay bank loan to the extent of ₹50,000.
- Raised bank loan of ₹40,000 to pay off other loan.
Effect of transactions:
A) Increase in machine value and decrease in cash balance by ₹50,000 .
BALANCE SHEET
| Liabilities | ₹ | Assets | ₹ |
| Capital | 2,50,000 | Land | 2,00,000 |
| Bank Loan | 75,000 | Machinery | 1,50,000 |
| Other Loan | 75,000 | Cash | 50,000 |
| 4,00,000 | 4,00,000 |
B) Increase in machine value and increase in creditors by ₹60,000 .
BALANCE SHEET
| Liabilities | ₹ | Assets | ₹ |
| Capital | 2,50,000 | Land | 2,00,000 |
| Creditors for machinery | 60,000 | Machinery | 1,60,000 |
| Bank Loan | 75,000 | Cash | 1,00,000 |
| Other Loan | 75,000 | ||
| 4,60,000 | 4,60,000 |
C) Decrease in bank loan and decrease in cash by ₹50,000.
BALANCE SHEET
| Liabilities | ₹ | Assets | ₹ |
| Capital | 2,50,000 | Land | 2,00,000 |
| Bank Loan | 25,000 | Machinery | 1,00,000 |
| Other Loan | 75,000 | Cash | 50,000 |
| 3,50,000 | 3,50,000 |
D) Increase in bank loan and decrease in other loan by ₹40,000.
BALANCE SHEET
| Liabilities | ₹ | Assets | ₹ |
| Capital | 2,50,000 | Land | 2,00,000 |
| Bank loan | 1,15,000 | Machinery | 1,00,000 |
| Other Loan | 35,000 | Cash | 1,00,000 |
| 4,00,000 | 4,00,000 |
So every transactions and events has two aspects.
This gives basic accounting equation :
Equity (E) + Liabilities (L) = Assets (A)
OR
Equity (E)= Assets (A) – Liabilities(L)
Or, Equity + Long Term Liabilities + Current Liabilities = Fixed Assets + Current Assets
Equity + Long Term Liabilities = Fixed Assets + (Current Assets – Current Liabilities)
Or, Equity = Fixed Assets + Working Capital – Long Term Liabilities
