Double Element Principle– Accounting is a language of the organization. If every accounting professional begins following his own norms and concepts for accounting of various products then there will be an utter confusion.
Every Deal has two results: Debit and Credit. Both are opposite and equal likewise called Double Entry System. Accounting equation has been obtained on the basis of dual aspect idea as under:
- Assets = Liabilities Equity (Balance Sheet Formula)
- Net Earnings = Earnings– Expenditures (Earnings & Loss Equation)
Double Aspect Idea
Double Aspect Idea in Comprehensive– This idea is the core of double entry book-keeping. Every transaction or occasion has 2 elements:
- It increases one Property and decreases other Property;-LRB-
- It increases a Possession and simultaneously increases Liability;-LRB-
- It reduces one Asset, increases another Property;-LRB-
- It decreases one Asset, reduces a Liability.
Additionally:
- It increases one Liability, decreases other Liability;-LRB-
- It increases a Liability, increases an Asset;-LRB-
- It reduces Liability, increases other Liability;-LRB-
- It decreases Liability, reduces a Possession.
So every deal and event has two elements.
This gives basic accounting equation:
Equity (E) Liabilities (L) = Properties (A)
or
Equity (E)= Assets (A)– Liabilities( L)
Or, Equity Long Term Liabilities Existing Liabilities = Fixed Assets Current Properties
Or, Equity Long Term Liabilities = Fixed Assets (Existing Possessions– Present Liabilities)
Or, Equity = Fixed Assets Working Capital– Long Term Liabilities
Whatever is gotten as funds is either expended (Expenses)– Debited to Earnings & Loss Account
Or Lost– Losses are transferred to Capital Account
Or saved– Revealed on the Assets side of the Balance Sheet
For That Reason, Capital Income/Profits Liabilities = Expenses Net Loss Properties Or, Capital Earnings– Expenditures Net Profits = Assets– Liabilities
Because the net revenue/ loss is transferred to equity, the net impact is
Equity Liabilities = Assets
Suggested
- Activity Ratio
- Accounting Formula
- Fund Circulation Statement
- Trial Balance
- Accounting Concept
- Capital Expenditure
