(i) The Dual Aspect Principle: According to this principle, every business transaction has a double (dual) effect on the business. This double effect can be recognized only by recording both the aspects of every transaction. There are two sides of every transaction. If one account is debited, any other account must be credited . and vice-versa. The system of recording transactions on the basis of this principle is known as Double Entry System. It is due to this principle that the two sides of the Balance Sheet are always equal. The following accounting equation will always hold good at any point of time.
Assets = Liabilities + Capital
OR
Capital = Assets – Liabilities
‘Whenever a transaction is recorded it must be recorded in two or more accounts to balance the equation. If a transaction increases or decreases one side of the equation, it will also decrease or increase the other side of the equation by the same amount. For example, if Rahul starts business with ₹ 1,00,000 in cash and takes a loan of ₹ 50,000 from the Bank and these ₹ 1,50,000 are used in buying a factory,
the equation in this case is :
Assets = Liabilities + Capital ₹ 1,50,000 = ₹ 50,000 + ₹ 1,00,000
(ii) The Going Concern Concept: It is assumed that the business will continue to exist for a long time in the future. Transactions are recorded on the assumption that the business will exist for an indefinite period of time. It is on this assumption that a distinction is made between capital expenditure and revenue expenditure. Market value of fixed assets is not recorded, as these assets are not to be sold in the near future.
A firm is said to be a going concern when there is neither the intention nor the necessity to wind up its affairs. In the absence of this assumption no outside parties would enter into long-term contracts with the firm for supplying funds and goods.
This assumption also justifies the distinction between fixed assets and current assets. The going concern concept also implies that the existing liabilities will be paid at maturity. Unsold stock of goods are taken to the next year.
