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:
“Help thyself: then everyone will help thee too. Principle of Christian charity.”
—Friedrich Nietzsche (1844–1900)
“... it is not the color of the skin that makes the man or the woman, but the principle formed in the soul. Brilliant wit will shine, come from whence it will; and genius and talent will not hide the brightness of its lustre.”
—Maria Stewart (1803–1879)
“The principle that human nature, in its psychological aspects, is nothing more than a product of history and given social relations removes all barriers to coercion and manipulation by the powerful.”
—Noam Chomsky (b. 1928)