Looking for what are the golden rules of accounting? AAMcourses is here to answer your question. The golden rules of accounting are considered the heart of accounting. Every work is done based on some principles. Accounts work based on the golden rules of accounting.
Every transaction has to be recorded systematically. The reason is so that the data is understandable when being analyzed. The golden rules of accounting help to store this data in a systematic form. There are a total of 3 universally known golden rules. These rules are based on journal entries.
Without further ado, let’s look at the golden rules of accounting.
The 3 Golden Rules of Accounting
The world of accounting revolves around the concept of – Debit side and credit side. Both sides have to be carefully filled with correct transaction records. The golden rules of accounting help to realize which transaction is to be recorded on which side.
The 3 golden rules are :
Debit The Receiver, Credit The Giver
The first rule of “Debit the receiver, credit the giver” is applicable to personal accounts. A personal account refers to an organization or an individual.
Debit the receiver means you have to enter the transaction on the debit side of the account if something is received. Credit the giver means when a person gives something to someone else, it has to be recorded on the credit side of the account.
Debit What Come In, Credit What Goes Out
This rule is applicable in the case of real accounts. Real account refers to accounts permanent account. When purchasing machinery, land, and building is done, it is a part of the real account. Real account refers to all assets and liabilities.
According to this rule, when the organization purchases an asset, it has to be recorded on the debit side of the account. When the organization sells its assets, it goes on the credit side of the account.
Debit All Expenses And Losses, Credit All Incomes And Gains
This rule deals with nominal accounts. In a nominal account, transactions for one fiscal year are recorded. They are also called temporary accounts. It consists of transactions about revenue, expenses, gains, and losses.
According to the golden rules of accounting, if there has been a business expense, you have to record it on the debit side. If the business has gained something, it will be recorded on the credit side.
These are the 3 golden rules that work as the basics of accounting. It helps to make sure that all financial transactions are recorded systematically.
ALSO READ ABOUT : 3 Important Tools of Financial Statement Analysis – Definition, Types, Objectives and Limitations with example
FAQs
What are the 3 types of accounts?
Real account, personal account, and nominal account are the 3 types of accounts used in accounting.
What are the 3 basic accounting principles?
Accrual, Conservatism, and consistency principles are the 3 basic accounting principles.
What are the 3 golden rules of accounting?
Debit The Receiver, Credit The Giver
Debit What Come In, Credit What Goes Out
Debit All Expenses And Losses, Credit All Incomes And Gains
These are the 3 golden rules of accounting.
What is the full form of GAAP?
GAAP refers to the Generally Accepted Accounting Principles. It is a collection of accounting rules and standards used for preparing the financial statement.
Closing Statement
The golden rules of accounting are the basics that help every accountant prepare their accounts. It helps accountants maintain financial records, prepare financial statements, evaluate business performance, etc. It also helps the business to comply with government regulations and the decision-making process of the business.
I hope this article about the golden rules of accounting is informative. If you have any doubts or suggestions, provide your statement in the comment box.