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:
“On principle I dislike an oath which requires a man to swear he has not done wrong. It rejects the Christian principle of forgiveness on terms of repentance. I think it is enough if the man does no wrong hereafter.”
—Abraham Lincoln (1809–1865)
“The principle of subordination is the great bond of union and harmony through the universe.”
—Catherine E. Beecher (1800–1878)
“The principle of majority rule is the mildest form in which the force of numbers can be exercised. It is a pacific substitute for civil war in which the opposing armies are counted and the victory is awarded to the larger before any blood is shed. Except in the sacred tests of democracy and in the incantations of the orators, we hardly take the trouble to pretend that the rule of the majority is not at bottom a rule of force.”
—Walter Lippmann (1889–1974)