The Golden rules of accounting:
The 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 diagram.
Now, I will explain all these following three Golden rules of Accounting individually with examples:
|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
This rule is applicable to all assets of the business when an asset is purchased, sale, depreciated or disposed of.
Example of Real Accounts:- Cash, Land and Building, Plant and Machine, Furniture and Fixture, Trademarks, Etc.
Click here to check the meaning of an asset.
Now the question is: –
This rule is applicable to Persons, artificial persons and representative persons.
Example of Personal Accounts: – Aman, Ram And Sons., HAPPSS Store., Bank A/c (SBI), Outstanding Salary, Prepaid Expenses, Etc.
This rule is applicable to all Expenses, Income and Losses/Profits.
Example of Nominal Accounts:- Salary, Wages, Purchases, Sales, Commission Received, Etc.
Click here to check the meaning of an Expenses, Income and Losses/Profits.
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 will Explain it in next topic
If you have any question about this topic please ask it in the comment section below.