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:
“For me chemistry represented an indefinite cloud of future potentialities which enveloped my life to come in black volutes torn by fiery flashes, like those which had hidden Mount Sinai. Like Moses, from that cloud I expected my law, the principle of order in me, around me, and in the world.... I would watch the buds swell in spring, the mica glint in the granite, my own hands, and I would say to myself: “I will understand this, too, I will understand everything.””
—Primo Levi (1919–1987)
“He was always late on principle, his principle being that punctuality is the thief of time.”
—Oscar Wilde (1854–1900)
“You may call a jay a bird. Well, so he is, in a measure—because he’s got feathers on him, and don’t belong to no church, perhaps; but otherwise he is just as much a human as you be. And I’ll tell you for why. A jay’s gifts and instincts, and feelings, and interests, cover the whole ground. A jay hasn’t got any more principle than a Congressman.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)