The Golden rules of accounting:

Golden rules of Accounting is the basis of Journal and journal is the basis of the accounting system. In Journal we record all day to day transaction of business. For journalizing all day to day transaction of the business we have to know the Golden rules of Accounting shown in the following table: –

1. Real Accounts	Debit: What comes in  Credit: What goes out
2. Personal Accounts	Debit:- The Receiver  Credit: The Giver
3. Nominal Accounts	Debit:- All Expenses and Losses   Credit:- All income and gains

1. Real Accounts:

This rule is applicable to all assets of the business when an asset is purchased, sold, depreciated or disposed of.

Example of accounts on which the Real Account is applicable:- Cash, Land and Building, Plant and Machine, Furniture and Fixture, Trademarks, Vehicles, Leasehold premises, Computer Equipment, Computer Software, Office equipment, Stock or Inventory,  Etc.

“Click here to check the meaning of an asset.”

Now the question is, How to apply this rule to any transaction?

we have explained it with the following example: –

Example No. 1: Purchase Furniture for Rs 10,000/-

Journal entry for the above Example: –

Now, we got the debited account and credited account. So, it into the standard format journal day book as shown below: –

Date	Particulars	L.F.	Debit	Credit
	Furniture a/c                             Dr.		10,000
	To Cash a/c			10,000
	(Being Furniture purchased)

The above-shown format is the standard format for Journal Entries in Accounting. if you want more explanation about it please visit the following link. 

Journal Entries | Meaning | Format | Examples

 

 

2. Personal Accounts:

This rule is applicable to all Individual. The individuals are three type shown as following: –

1. Persons: –  Natural Person.
2. Artificial persons: – The person created by man.
3. Representative persons: – Those accounts which represent the person or group of person.

Example of accounts on which the Personal Account is applicable: –

• Examples of Persons: – Amanpreet, Jazz, Pawan Kumar, Vijay, Amir Khan. Etc.
• Examples of Artificial persons: – Ram And Sons., HAPPSS Store., Bank A/c (SBI), Reliance Industries Ltd. Etc.
• Examples of Representative persons: –  Outstanding Salary, Prepaid Expenses, Accrued Income, Pre- received Income, Etc.

Example No. 2: – Purchase of Furniture For Rs. 10,000/- from Aman on Credit.

Journal entry for the above Example: –

Now, we got the debited account and credited account. So, it into the standard format journal day book as shown below: –

Date	Particulars	L.F.	Debit	Credit
	Furniture a/c                             Dr.		10,000
	To Aman a/c			10,000
	(Being Furniture purchased on credit from Aman)

3. Nominal Accounts:

This rule is applicable to all Expenses, Income and Losses/Profits.

Example of all accounts on which the Nominal Account is applicable:-

• Expenses Accounts: –Salary, Wages, Purchases, Electricity bill, Telephone and mobile Rent, Transportation charges, Rent Paid, Etc.
• Incomes Accounts: – Sales, Commission Received, Rent on sublet building received, Etc.
• Losses Accounts: – Loss on sale of an asset, Loss by Theft, Loss by fire, loss by an accident, Etc.
• Profits Accounts: – Profit on sale of an asset, Etc.

Click here to check the meaning of an Expenses, Income and Losses/Profits.

Example No. 3:- Salary paid to employees Rs. 5000/-.

Journal entry for the above Example: –

Now, we got the debited account and credited account. So, it into the standard format journal day book as shown below: –

Date	Particulars	L.F.	Debit	Credit
	Salary a/c                             Dr.		10,000
	To Cash a/c			10,000
	(Being salary paid to employees)

Example No. 4 : –

Journalizing the following transactions.

Routine journal entries

S.No.	Transaction	Amount
1	Capital Introduced by owner	100,000
2	Purchase goods for cash	50,000
3	Sold goods for cash	15,000
4	Paid for Salary	2,000
5	Sold goods to Mr A	50,000
6	Purchase goods from M/s Ram and Sons.	1,00,000
7	Cash received from Mr A	50,000
8	Cash paid to M/s Ran and Sons.	50,000

Solution: –

Firstly get debit and credit account for each transaction by applying the golden rule of account shown below: –

S. No.	Select affected Accounts from the transaction	The Nature of Account	The Rule which will be Applied on these accounts	Affect of a transaction to these accounts	The condition of Rule applied	According to Rule, get know that which account will be Dr./Cr.
1.	Cash a/c	Assets	Real Account	Cash received	What Comes in	Debit
	Capital a/c	Person	Person Account	the owner is giving cash to the business	The Giver	Credit
2.	Purchase a/c	Expenses	Nominal Account	Money spent on the purchase of goods	All expenses and losses	Debit
	Cash a/c	Assets	Real Account	Cash paid for the purchase of goods	What Goes out	Credit
3.	Cash a/c	Assets	Real Account	Cash received from the sale of goods	What comes in	Debit
	Sale a/c	Income	Nominal Account	money earned on the purchase of goods	All Income and gain	Credit
4.	Salary a/c	Expenses	Nominal Account	money spent on the paid salary	All expenses and losses	Debit
	Cash a/c	Assets	Real Account	Cash paid for salary	what Goes out	Credit
5.	Mr A a/c	Person	Person Account	goods purchased by him	The receiver	Debit
	Sale a/c	Income	Nominal Account	money earned on the sale of goods	All Income and gain	Credit
6.	Purchase a/c	Expenses	Nominal Account	Money spent on the purchase of goods	All expenses and losses	Debit
	M/s Ram and Sons. a/c	Person	Person Account	Sold goods to us	The Giver	Credit
7.	Cash a/c	Assets	Real Account	Cash received	What comes in	Debit
	Mr A a/c	Person	Person Account	paid cash to us	The Giver	Credit
8.	M/s Ram and Sons a/c	Person	Person Account	Cash received by him	The receiver	Debit
	Cash a/c	Assets	Real Account	Cash paid	What Goes out	Credit

Journal Day books

Date	Particulars		L.F.	Debit	Credit
	Cash a/c	Dr.		1,00,000
	To Capital a/c				1,00,000
	(Being started business with cash)
	Purchase a/c	Dr.		50,000
	To Cash a/c				50,000
	(Being Purchase good for cash)
	Cash a/c	Dr.		15,000
	To Sales a/c				15,000
	(Being sold goods for cash)
	Salary a/c	Dr.		3,000
	To Cash a/c				3,000
	(Being salary paid to employees)
	Mr A a/c	Dr.		50,000
	To Sales a/c				50,000
	(Being sold goods to Mr A on credit)
	Purchase a/c	Dr.		1,00,000
	To M/s Ram and Sons. a/c				1,00,000
	(Being Purchased goods from M/s Ram and Sons. on credit)
	Cash a/c	Dr.		50,000
	Mr A a/c				50,000
	(Being Payment received from Mr A)
	M/s Ram and Sons a/c	Dr.		50,000
	To Cash a/c				50,000
	(Being Payment made to M/s Ram and Sons)

Reminder Notes: –

Steps Involved in the application of the Golden Rules of accounting are shown below: –

Step No.	Description
1st	Select affected Accounts from the transaction
2nd	The Nature of Account
3rd	The rule which will be applied to these accounts
4th	Affect of a transaction on these accounts
5th	Which condition of Rule applied.
6th	According to Rule, get know that which account will be Debit or credit.

First, solve it yourself then see an example.

Example No. 5 : –

The post following business transaction into the journal day book.

S. No.	Transaction	Amount
1	Capital Introduced by owner	10,00,000
2	Open a Bank account	2,00,000
3	Purchase furniture	5,00,000
4	Purchase Goods	1,00,000
5	Paid for freight	12,000
6	Sold goods	30,000
7	Paid office rent	10,000
8	Sold goods to Mr X	50,000

Solution: –

Firstly get debit and credit account for each transaction by applying the golden rule of account shown below: –

S. No.	Select affected Accounts from the transaction	The Nature of Account	The Rule which will be Applied on these accounts	Affect of a transaction to these accounts	The condition of Rule applied	According to Rule, get know that which account will be Debit / Credit
1.	Cash a/c	Assets	Real Account	Cash received	What Comes in	Debit
	Capital a/c	Person	Person Account	the owner is giving cash to the business	The Giver	Credit
2.	Bank a/c	Artificial person	Personal Account	Bank received cash	The receivers	Debit
	Cash a/c	Assets	Real Account	Cash deposited into a bank a/c	What Goes out	Credit
3.	Furniture a/c	Assets	Real Account	furniture purchased	what comes in	Debit
	Cash a/c	Assets	Real Account	Cash paid for the purchase of goods	What Goes out	Credit
4.	Purchase a/c	Expenses	Nominal Account	Money spent on the purchase of goods	All expenses and losses	Debit
	Cash a/c	Assets	Real Account	Cash paid for the purchase of goods	What Goes out	Credit
5.	Freight a/c	Expenses	Nominal Account	money spent to paid Freight	All expenses and losses	Debit
	Cash a/c	Assets	Real Account	Cash paid for salary	what Goes out	Credit
6	Cash a/c	Assets	Real Account	Cash received from the sale of goods	What comes in	Debit
	Sale a/c	Income	Nominal Account	money earned on the purchase of goods	All Income and gain	Credit
7.	Rent a/c	Expenses	Nominal Account	Money spent to paid Rent	All expenses and losses	Debit
	Cash a/c	Assets	Real Account	Cash paid for salary	what Goes out	Credit
8.	Mr X a/c	Person	Person Account	Goods purchased by him	The receiver	Debit
	Sale a/c	Income	Nominal Account	money earned on the sale of goods	All Income and gain	Credit

Journal Day books

Date	Particulars		L.F.	Debit	Credit
	Cash a/c	Dr.		10,00,000
	To Capital a/c				10,00,000
	(Being started business with cash)
	Bank a/c	Dr.		2,00,000
	To Cash a/c				2,00,000
	(Being bank account opened )
	Furniture a/c	Dr.		500,000
	To Cash a/c				500,000
	(Being furniture purchase for cash)
	Purchase a/c	Dr.		100,000
	To Cash a/c				100,000
	(Being Purchase good for cash)
	Freight a/c	Dr.		12,000
	To Cash a/c				12,000
	(Being freight paid)
	Cash a/c	Dr.		30,000
	To Sales a/c				30,000
	(Being sold goods for cash)
	Rent a/c	Dr.		10,000
	To Cash a/c				10,000
	(Being Rent  paid for the office building)
	Mr X a/c	Dr.		50,000
	To Sales a/c				50,000
	(Being sold goods to Mr X on credit)

In some of the cases, these rules are very difficult to understand how to apply it, So that’s why Modern Rules of Accounting have come into existence. We had Explained it in the next topic.

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