Golden Rules of Accounting – Using Debit & Credit Rules

Golden Rules of Accounting

The three golden rules of accounting help determine which account should be debited and which account should be credited under the traditional classification of accounts. They are applied within the double entry system, where every transaction affects at least two accounts and total debits must equal total credits.

Before applying a rule, identify the accounts involved and classify each one as personal, real, or nominal. The account type determines the correct debit and credit treatment.

Three Golden Rules of Debit and Credit

Type of account	Debit rule	Credit rule
Personal account	Debit the receiver	Credit the giver
Real account	Debit what comes in	Credit what goes out
Nominal account	Debit all expenses and losses	Credit all incomes and gains

How to Apply the Golden Rules to a Transaction

1. Read the transaction and identify what the business received, gave, earned, or spent.
2. List every account affected by the transaction.
3. Classify each account as personal, real, or nominal.
4. Apply the rule for that account type.
5. Confirm that the total debit amount equals the total credit amount.
6. Record the transaction using the correct debit and credit entry.

Personal Account Rule: Debit the Receiver, Credit the Giver

A personal account represents a person, business, organization, bank, or other legal entity. The rule is:

• Debit the receiver
• Credit the giver

Example: On June 5, 2019, Tutorial Kart purchased furniture worth $8,000 on credit from TMC Dealers. Furniture is a real account and comes into the business, so Furniture A/c is debited. TMC Dealers is a personal account and gives the furniture on credit, so TMC Dealers A/c is credited.

Date	Particulars	Debit ($)	Credit ($)	Rule applied
05-Jun-19	Furniture A/c Dr.	8,000		Debit what comes in
05-Jun-19	To TMC Dealers A/c		8,000	Credit the giver

This entry uses two golden rules because the transaction affects two different account types: furniture is a real account, while TMC Dealers is a personal account.

Real Account Rule: Debit What Comes In, Credit What Goes Out

A real account represents an asset or property of the business, such as cash, furniture, machinery, land, or equipment. The rule is:

• Debit what comes in
• Credit what goes out

Example: The business purchased equipment for cash of $4,999. Equipment comes into the business, while cash goes out.

Date	Particulars	Debit ($)	Credit ($)	Rule applied
10-Jun-19	Equipment A/c Dr.	4,999		Debit what comes in
10-Jun-19	To Cash A/c		4,999	Credit what goes out

Both accounts in this transaction are real accounts. The asset received is debited, and the asset given up is credited.

Nominal Account Rule: Debit Expenses and Losses, Credit Incomes and Gains

A nominal account records expenses, losses, incomes, and gains for an accounting period. Examples include rent, salary, commission received, interest received, and loss on sale of an asset. The rule is:

• Debit all expenses and losses
• Credit all incomes and gains

Example: On June 30, 2019, the business paid rent of $500 in cash. Rent is an expense, so Rent A/c is debited. Cash goes out of the business, so Cash A/c is credited.

Date	Particulars	Debit ($)	Credit ($)	Rule applied
30-Jun-19	Rent A/c Dr.	500		Debit all expenses
30-Jun-19	To Cash A/c		500	Credit what goes out

The rent account follows the nominal account rule, while the cash account follows the real account rule.

Golden Rules of Accounting with Additional Examples

Transaction	Debit	Credit	Reason
Cash received from a customer	Cash A/c	Customer A/c	Cash comes in; the customer gives cash
Salary paid in cash	Salary A/c	Cash A/c	Salary is an expense; cash goes out
Commission received in cash	Cash A/c	Commission A/c	Cash comes in; commission is income
Goods purchased on credit from a supplier	Purchases A/c	Supplier A/c	Purchases are debited; the supplier is the giver
Cash paid to a creditor	Creditor A/c	Cash A/c	The creditor receives payment; cash goes out

Traditional Golden Rules and Modern Accounting Rules

The golden rules use the traditional classification of personal, real, and nominal accounts. Modern accounting often classifies accounts as assets, liabilities, equity, revenue, and expenses. Both approaches produce the same balanced journal entry when applied correctly.

Modern account category	Increase recorded as	Decrease recorded as
Assets	Debit	Credit
Expenses	Debit	Credit
Liabilities	Credit	Debit
Equity	Credit	Debit
Revenue	Credit	Debit

For example, purchasing equipment for cash increases one asset, Equipment, and decreases another asset, Cash. Equipment is debited and Cash is credited under both the traditional and modern approaches.

Debit and Credit Checks Before Posting a Journal Entry

• Have all affected accounts been identified?
• Is each account classified correctly?
• Does the debit or credit treatment match the applicable rule?
• Are the debit and credit amounts equal?
• Does the narration clearly describe the transaction?

Golden Rules of Accounting FAQs

What are the three golden rules of accounting?

The three rules are: debit the receiver and credit the giver for personal accounts; debit what comes in and credit what goes out for real accounts; and debit all expenses and losses while crediting all incomes and gains for nominal accounts.

Why must total debits equal total credits?

Every transaction has at least two effects under double-entry accounting. Recording equal debit and credit amounts keeps the accounting equation balanced.

Is cash a personal, real, or nominal account?

Cash is a real account because it is an asset of the business. Cash received is debited, and cash paid is credited.

Is rent a nominal account?

Yes. Rent is an expense and therefore a nominal account. Rent expense is debited when it is incurred or paid.

Can one transaction use more than one golden rule?

Yes. A transaction can affect accounts from different categories. For example, buying furniture on credit debits the real account for furniture and credits the personal account of the supplier.