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, 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 Softwares, Office equipment, Stock or Inventory, Etc.
Click here to check the meaning of an asset.
Now the question is: –
This rule is applicable on all Individual. The individuals are three type shown as following: –
- Persons: – Natural Person.
- Artificial persons: – The person created by man.
- 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, Sachine, 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.
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.
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.