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:
“Antagonistic cooperation is the principle of all markets and many marriages.”
—Mason Cooley (b. 1927)
“Life is a game in which the rules are constantly changing; nothing spoils a game more than those who take it seriously. Adultery? Phooey! You should never subjugate yourself to another nor seek the subjugation of someone else to yourself. If you follow that Crispian principle you will be able to say “Phooey,” too, instead of reaching for your gun when you fancy yourself betrayed.”
—Quentin Crisp (b. 1908)
“Circumstances ... give in reality to every political principle its distinguishing colour and discriminating effect. The circumstances are what render every civil and political scheme beneficial or noxious to mankind.”
—Edmund Burke (1729–1797)