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:
“... 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)
“I do not mean to exclude altogether the idea of patriotism. I know it exists, and I know it has done much in the present contest. But I will venture to assert, that a great and lasting war can never be supported on this principle alone. It must be aided by a prospect of interest, or some reward.”
—George Washington (1732–1799)
“There is no teaching until the pupil is brought into the same state or principle in which you are; a transfusion takes place; he is you, and you are he; then is a teaching; and by no unfriendly chance or bad company can he ever lose the benefit.”
—Ralph Waldo Emerson (1803–1882)