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:
“No habit or quality is more easily acquired than hypocrisy, nor any thing sooner learned than to deny the sentiments of our hearts and the principle we act from: but the seeds of every passion are innate to us, and nobody comes into the world without them.”
—Bernard Mandeville (1670–1733)
“The principle of fashion is ... the principle of the kaleidoscope. A new year can only bring us a new combination of the same elements; and about once in so often we go back and begin again.”
—Katharine Fullerton Gerould (1879–1944)
“From the age of fifteen, dogma has been the fundamental principle of my religion: I know no other religion; I cannot enter into the idea of any other sort of religion; religion, as a mere sentiment, is to me a dream and a mockery.”
—Cardinal John Henry Newman (1801–1890)