Everyone in this world is into different kind of business. These things help them earn their living and keep them running in their lives. Accounting is one of the major fields into which there are a lot of people. So these people must need to know golden rules of accounting.
This thing is very basic when things comes down to the road of accounting. So what are the golden rule of accounts? This is a question we are trying to figure out today.
Three golden rules in finance and accounting
These 3 golden rules of accounting which we are going to discuss today form the very basic part of accounting and finance. A lot of people here must already know about these golden rules of accounting with examples even. But we need to get down to the bottom and very basics of this thing.
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What is the use of these golden rules?
The 3 golden rules are really important in the field of accounting and finance as we have discussed. The usage of these rules is also very important. When one needs to prepare an accurate journal entry then these golden rules of accounting are used.
The importance of these rules of accounting which are referred to as golden increase even more because of the thing that an accurate journal entry preparation is very basic part of accounting and act as a cornerstone for all bookkeeping.
What are these golden rules?
These golden rules of accounting are also referred as traditional rules of accounting and rules of debit and credit.
These golden rules have usage under different accounts.
For real account the golden rules are.
- If the item which is real account is coming into the business then there is debit.
- If the item which is again real account here is going out of the business then there is credit.
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For personal account we refer to golden rules of accounting in this way.
- If the person, group or legal body is receiving something then there is debit.
- If the person, group or legal body is giving something then there is credit.
For nominal account the things are referred to as follows.
- If its an expense or loss for the business then it is referred to as debit.
- If its an income or gain for the business then it is referred to as credit.
So this is how the golden rules of accounting works when the different types of accounts are involved in any kind of business or something like that.
Example
Let us go through golden rules of accounting with example. Let us there is situation of some kind of goods sold for 5,000 rupees on credit to Mr. X.
The account involved is of Mr. X account. In this personal account the receiver is involved and there is debit of 5,000.
When the account involved is of sales then the rule applied is related to nominal account and there is credit of 5,000.