Financial Accounting Concepts

What is Dual Aspect Concept in Bookkeeping?

According to the dual aspect concept, there are two aspects of accounting, one represents the assets of the business, and the other is the claim against these assets (i.e. capital and liabilities).

The concept states that these two aspects are ALWAYS equal to each other. Due to this reason, any accounting entry affects at least two accounts. Hence, it is called the dual aspect concept.

In simpler terms, whenever something increases, something else must decrease by the same amount to maintain balance. This concept forms the basis of double-entry bookkeeping, which is the standard accounting system used by businesses to track their financial transactions.

What does dual mean in the Dual Aspect Concept?

The word dual represents two things; the same term is used to mean two different things in different subject areas.

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 to the owner.

It provides the very basis for 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 that 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

Aspects of Dual Aspect Concept

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

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

The two aspects of each transaction may be represented by:

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

Similarly, there may be:

  1. Decreases in one liability, decrease in other liabilities
  2. An increase in one liability increases another asset
  3. The decrease in liability increases other liabilities.
  4. A decrease in liabilities and a decrease in assets

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 at the accounting period’s start and conclusion. Every business needs 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.

Advantages of Dual Aspect Concept

Here are some of the benefits of using the dual aspect concept:

Accuracy: The dual aspect concept helps to ensure that the accounting records are accurate, as any errors will cause the accounting equation to be out of balance.

Completeness: The dual aspect concept helps to ensure that all transactions are recorded, as any missing transactions will also cause the accounting equation to be out of balance.

Reliability: The dual aspect concept helps to make the accounting records more reliable, as it provides a way to check for errors.


The dual aspect concept is a well-known bookkeeping principle that states that an entity can be viewed in two ways, as an asset and a liability. This principle is widely used in accounting and financial reports. The concept enables companies to reduce their overall liabilities by creating assets out of intangible assets, such as goodwill or patents.

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

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