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What is Dual Aspect Concept in accounting ?

The Dual Aspect Concept : Dual Aspect Concept, also known as Duality Principle, is a fundamental convention of accounting that necessitates the recognition of all aspects of an accounting transaction. Dual aspect concept is the underlying basis for double entry accounting system. Explanation In a single entry system, only one aspect of a transaction is recognized. For instance, if a sale is made to a customer, only sales revenue will be recorded. However, the other side of the transaction relating to the receipt of cash or the grant of credit to the customer is not recognized. Single entry accounting system has been superseded by double entry accounting. You may still find limited use of single entry accounting system by individuals and small organizations that keep an informal record of receipts and payments. Double entry accounting system is based on the duality principle and was devised to account for all aspects of a transaction. Under the system, aspects of tran...
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What is Business Entity Concept in Accounting?

The Business Entity Concept :

The business entity concept (also known as separate entity and economic entity concept) states that the transactions related to a business must be recorded separately from those of its owners and any other business. In other words, while recording transactions in a business, we take into account only those events that affect that particular business; the events that affect anyone else other than the business entity are not relevant and are therefore not included in the accounting records of the business.

This concept is very important because if transactions of a business are mixed up with that of its owners or other businesses, the accounting information would lose its usability.

The business entity concept of accounting is applicable to all types of business organizations (i.e., sole proprietorship, partnership and corporation) even if a law does not recognize a business and its owner as the separate entities.

Importance/need of business entity concept.

The business entity concept of accounting is of great importance because of the following reasons:

  1. The business entity concept is essential to separately measure the performance of a particular business in terms of profitability and cash flows etc.
  2. It helps in assessing the financial position of each and every business separately on a particular date.
  3. It becomes difficult and impossible to audit the records of a business if they are intermingled with those of different entities/individuals.
  4. The concept ensures that each and every business entity is taxed separately.
  5. The employment of business entity concept is very general among business organizations. If a company ignores this concept, it would not be able to compare its financial performance with that of others in the industry.

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What is Dual Aspect Concept in accounting ?

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