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:
“The principle of subordination is the great bond of union and harmony through the universe.”
—Catherine E. Beecher (1800–1878)
“Country people do not behave as if they think life is short; they live on the principle that it is long, and savor variations of the kind best appreciated if most days are the same.”
—Edward Hoagland (b. 1932)
“If there be one principle more deeply rooted than any other in the mind of every American, it is that we should have nothing to do with conquest.”
—Thomas Jefferson (1743–1826)