Debits and Credits - Principle

Principle

Each transaction that takes place within the business will consist of at least one debit to a specific account and at least one credit to another specific account. A debit to one account can be balanced by more than one credit to other accounts, and vice versa. For all transactions, the total debits must be equal to the total credits and therefore balance.

The general accounting equation is as follows:

The equation thus becomes A – L – E = 0 (zero). When the total debits equals the total credits for each account, then the equation balances.

The extended accounting equation is as follows:

Both sides of these equations must be equal (balance).

Each transaction is recorded in a ledger or "T" account, e.g. a ledger account named "Bank" that can be changed with either a debit or credit transaction.

In accounting it is acceptable to draw-up a ledger account in the following manner for representation purposes:

Bank
Debits (dr) Credits (cr)

Read more about this topic:  Debits And Credits

Famous quotes containing the word principle:

    An evident principle ... is the principle of justice to all peoples and nationalities, and their right to live on equal terms of liberty and safety with one another, whether they be strong or weak.
    Woodrow Wilson (1856–1924)

    Experimental work provides the strongest evidence for scientific realism. This is not because we test hypotheses about entities. It is because entities that in principle cannot be ‘observed’ are manipulated to produce a new phenomena
    [sic] and to investigate other aspects of nature.
    Ian Hacking (b. 1936)

    It is funny that men who are supposed to be scientific cannot get themselves to realise the basic principle of physics, that action and reaction are equal and opposite, that when you persecute people you always rouse them to be strong and stronger.
    Gertrude Stein (1874–1946)