3 Golden Rules of Accounting

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Golden Rules of Accounting
Golden Rules of Accounting
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3 Golden Rules of Accounting

The three golden rules of accounting are:

  1. Debit the receiver, credit the giver: This rule is used when there is a transaction involving a transfer of goods or services, where the receiver of the goods or services is debited and the giver is credited. For example, when a company purchases inventory from a supplier, the company’s inventory account is debited and the supplier’s accounts receivable account is credited.
  2. Debit what comes in, credit what goes out: This rule is used for transactions involving cash or bank accounts, where any inflow of cash or bank balance is debited and any outflow is credited. For example, when a company receives cash from a customer, the company’s cash account is debited and the customer’s accounts receivable account is credited.
  3. Debit all expenses and losses, credit all incomes and gains: This rule is used for transactions involving expenses, losses, incomes, and gains. Any expenses or losses are debited and any incomes or gains are credited. For example, when a company incurs expenses such as rent or salaries, the company’s expense account is debited and when the company earns revenue from sales, the company’s revenue account is credited.

Golden Rules of Accounting with Examples

The three golden rules of accounting are as follows:

  1. Debit what comes in, Credit what goes out (Real Account)
  2. Debit the receiver, Credit the giver (Personal Account)
  3. Debit all expenses and losses, Credit all incomes and gains (Nominal Account)

Here are some examples to understand the golden rules of accounting:

  1. Debit what comes in, Credit what goes out (Real Account)
    • Example: Purchase of machinery for cash
    • Journal Entry: Machinery A/C (Debit) – To Cash A/C (Credit)
  2. Debit the receiver, Credit the giver (Personal Account)
    • Example: Payment made to a supplier
    • Journal Entry: Supplier A/C (Credit) – To Cash A/C (Debit)
  3. Debit all expenses and losses, Credit all incomes and gains (Nominal Account)
    • Example: Rent paid by cash
    • Journal Entry: Rent A/C (Debit) – To Cash A/C (Credit)

It is important to note that the rules apply differently depending on the type of account being used, and the specific transaction being recorded.

State the Golden Rules of Accounting

The three golden rules of accounting are:

  1. Debit the receiver, credit the giver:
    This rule applies to personal accounts. It means that when a person receives something, the account should be debited, and when a person gives something, the account should be credited. For example, when a business receives cash from a customer, the cash account will be debited, and the customer’s account will be credited.
  2. Debit what comes in, credit what goes out:
    This rule applies to real accounts. It means that when an asset comes into the business, the account should be debited, and when an asset goes out of the business, the account should be credited. For example, when a business purchases a computer, the computer account will be debited, and the cash account will be credited.
  3. Debit expenses and losses, credit income and gains:
    This rule applies to nominal accounts. It means that when an expense or loss is incurred, the account should be debited, and when income or gain is earned, the account should be credited. For example, when a business pays for rent, the rent account will be debited, and the cash account will be credited.

These rules form the basis of the double-entry bookkeeping system, which is used to record financial transactions and ensure accuracy in accounting.

Golden Rules of Accounting with Examples PDF

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FAQs on Golden Rules of Accounting

What is meant by the golden rule of accounting?

The golden rule of accounting refers to the basic principles that govern the recording of financial transactions in accounting. It states that for every debit entry, there must be an equal and corresponding credit entry, and vice versa. In other words, the total value of debits must always equal the total value of credits in a transaction or an account.
The golden rule of accounting is based on the dual aspect concept, which states that every transaction has two aspects – a debit aspect and a credit aspect – and both aspects must be recorded in the accounting system to maintain the balance of the accounting equation.
By following the golden rule of accounting, accountants ensure that financial transactions are accurately recorded, and the financial statements reflect a true and fair view of the organization’s financial position and performance.

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Last updated: August 14, 2023 Updated on 11:31 AM