Principal

The starting amount

In $I = Prt$, the $P$ is the principal: the money you put in, or the money you borrowed. Everything else in the formula is measured against it.

$$I = \underbrace{P}_{\text{principal}} \times r \times t$$

Principal is not the total

This is the distinction that costs marks.

Term	Means
principal	what you started with
interest	the extra earned or owed
total, or balance	principal plus interest

$500 invested that earns $60 has a principal of $500 and a balance of $560. The principal never changes under simple interest, however long the money sits.

Under compound interest it does move

Compound interest recalculates on the balance rather than the principal, so each year’s interest is charged on a larger figure than the last. The original principal is still the amount you put in — but it stops being the base the calculation uses.

That difference is the whole gap between the two systems. See simple interest.

The spelling

Principal is the amount of money. Principle is a rule or belief. The one with the a is the one with the cash.