Question -
Answer -
According to the dual-aspect concept, every transaction simultaneously, has two effects of equal amount, i.e. debit and credit. However, in any case, the equality of total assets with the total claims of business (sum of capital and liabilities) is not disturbed. This equality is algebraically represented as:
or
or, Liabilities = Asset− Capital
or, Capital = Assets −Liabilities
In any circumstance theabove equation cannot be changed. For example,
- Business started with cash Rs 1,00,000
| Cash A/c | Dr. | |
| To Capital A/c |
| Assets | = | Liabilities | + | Capital |
| Cash | | | | 1,00,000 |
| (1,00,000) | | | | |
Assets decrease, as cashis invested into the business and capital increases. Thus the equality betweenLHS and RHS remains intact.
- Goods purchased on credit Rs 20, 000
| Assets | = | Liabilities | + | Capital |
| Cash | Stock | | Creditors | | |
| | | | | | |
| 1,00,000 | 20,000 | = | 20,000 | + | 100,000 |
Assets increase as wellas liability increases, without disturbing the equality.
- Goods purchased with cash 25000
| Assets | = | Liabilities | + | Capital |
| Cash | Stock | = | | | |
| 1,00,000 | 20,000 | | 20,000 | + | 1,00,000 |
| (25,000) | 25,000 | | | | |
As goods are purchasedfor cash, so cash balance reduces by Rs 25,000, but on the other hand, stockbalance increases by Rs 25,000. Thus the total balance of LHS remains equal tothe total claims.