Cambridge IGCSE Accounting (0452) – 7.1 Accounting Principles: Dual Aspect (Duality)

1. The Ten Fundamental Accounting Principles

The IGCSE syllabus expects you to know the following principles. They form the conceptual framework for every journal entry, trial balance and financial statement.

2. The Dual Aspect (Duality) Principle

For every financial transaction there are two sides:

• Debit side – the account that receives value.
• Credit side – the account that gives value.

This double‑entry system guarantees that the accounting equation always remains true:

Assets = Liabilities + Equity

3. Debit and Credit Rules by Account Type

4. How Duality Keeps the Accounting Equation Balanced

1. Identify every account affected by the transaction.
2. Determine for each account whether it is increased or decreased.
3. Apply the debit/credit rules from the table above.
4. Record the journal entry so that total debits = total credits.
5. Check that the net effect on Assets equals the net effect on Liabilities + Equity.

Example 1 – Cash Sale of Services

Transaction: Receive $2,000 cash from a customer for services performed.

• Accounts involved: Cash (Asset) and Service Revenue (Revenue → Equity).
• Cash ↑ → Debit Cash $2,000.
• Revenue ↑ → Credit Service Revenue $2,000.

Debit   Cash ...................... $2,000
Credit  Service Revenue ........... $2,000

Effect on the equation: Assets (+$2,000) = Equity (+$2,000). Balance is maintained.

Example 2 – Purchase of Inventory on Credit

Transaction: Buy inventory worth $5,000 on credit.

1. Accounts involved: Inventory (Asset) and Accounts Payable (Liability).
2. Inventory ↑ → Debit $5,000.
3. Accounts Payable ↑ → Credit $5,000.
4. Journal entry:

   Debit   Inventory ................. $5,000
   Credit  Accounts Payable .......... $5,000
           

5. Equation check: Assets (+$5,000) = Liabilities (+$5,000). Balanced.

5. Interaction with the Other Accounting Principles

• Matching: When wages are accrued, debit Wages Expense (increase) and credit Accrued Wages Payable (increase liability).
• Prudence: For doubtful debts, debit Bad Debt Expense and credit Allowance for Doubtful Debts.
• Going Concern: Depreciation is recorded (Debit Depreciation Expense, Credit Accumulated Depreciation) because the business is assumed to continue operating.
• Materiality: Small, immaterial purchases may be recorded in a single “Miscellaneous Expense” account, provided they do not affect users’ decisions.
• Realisation: Revenue from a sale on credit is recognised at the point of delivery (Debit Accounts Receivable, Credit Sales Revenue) even though cash is received later.
• Business Entity: Personal withdrawals by the owner are recorded as Debit Owner’s Drawings and Credit Cash – never mixed with business revenue.

6. Link to Later Topics (Units 4 & 5)

The dual aspect principle underpins all subsequent procedures:

• Depreciation: Debit Depreciation Expense, Credit Accumulated Depreciation.
• Inventory Valuation: Debit Cost of Goods Sold, Credit Inventory (or the reverse for purchases).
• Accruals & Provisions: Debit Expense, Credit Accrued Liability/Provision.
• Preparation of Financial Statements: The trial balance, built from dual entries, feeds directly into the Income Statement and Statement of Financial Position for sole traders, partnerships, limited companies, clubs and manufacturing entities.

7. Common Mistakes to Avoid

• Recording only one side of the transaction (missing debit or credit).
• Confusing which side increases a particular account type.
• Allowing total debits to differ from total credits in a journal entry.
• Mixing personal and business transactions – breaches the Business Entity principle.
• Ignoring materiality – recording immaterial items that clutter the accounts.

8. Quick Revision Checklist

1. Read the transaction carefully – list every account affected.
2. Decide for each account whether it is increased or decreased.
3. Apply the debit/credit rules from the table.
4. Write the journal entry, debits on the left, credits on the right.
5. Verify: Total Debits = Total Credits and the accounting equation remains balanced.
6. Cross‑check that the entry respects the relevant principles (matching, prudence, materiality, etc.).