Golden Rules of Accounting
The whole accounting process is based on three golden rules of accounting, where the rules are based on double entry system. Through this golden rules, you can determine which account to be debited and which account to be credited.
How to apply accounting rules for any transactions
- First read transaction and understand carefully
- Check what type of accounts are provided
- Which accounting rule to be applied
- What are the affects of transactions
- Apply golden rule
- Post the transaction that applicable to debit and credit.
Account Types – Rules of Accounting
Firstly, we will discuss the important rules of account types. Generally, there are three types of accounts, i.e.
- Personal Accounts
- Real Accounts
- Nominal Accounts.
Below are important rules of debit and credit, where every learner should remember while doing posting.
- Debit (Dr.) the Receiver
- Credit (Cr.) the Giver
Debit (Dr.) the receiver & Credit (Cr.) the giver are the rules used for personal accounts. When a person gives anything to other person/ firm / organization or to any person, the receiver account will be debited and the giver account will be credited.
For example: On 5th June, 2019 Tutorial kart purchased furniture for $8,000 from TMC dealers.
|05-Jun-19||Tutorial Kart A/c||8,000||Debit (Dr.) the Receiver|
|05-Jun-19||To TMC Dealers A/c||8,000||Credit (Cr.) the giver|
In above example transaction, tutorial kart receiving the benefits (debit the receiver), so tutorial kart a/c to be debited. And TMC dealer is gives the beneficial, so TMC dealer account to be credited
- Debit (Dr.) what comes in
- Credit (Cr.) what goes out
Debit (Dr.) what comes in & Credit (Cr.) what goes out are rules for real accounts and applicable on all the assets. In simple terms, if anything comes in to business/ firm /organization than account will be debited and if anything goes out of business than account will be credited.
For example: An Asset was purchased for cash $4,999. The entries are as follows
|10-Jun-19||Asset A/c||4999||Debit (Dr.) what comes in|
|10-Jun-19||To Cash A/c||4999||Credit (Cr.) what goes out|
An asset purchased for cash $4,999, here an asset is coming to firm and firm paid cash of $4,999 (which is going out of business).
- Debit (Dr.) all expenses & losses
- Credit (Cr.) all incomes & gains
Debit (Dr.) all expenses & losses and credit (Cr.) all incomes and gains are rules used for Nominal accounts (e.g. rent, salary, etc). All expenses, losses should be debited and if any incomes, gains, profits are credited.
For example: On 31st June, 2019, Paid rent amount of $500.
|10-Jun-19||Rent A/c||500||Debit (Dr.) all expenses|
|To Cash A/c||500||Credit (Cr.) what goes out|