Golden Rules of Accounting

Three Golden Rules of Accounting

Creating journal entries requires some rules, such rule is named as Three Golden Rules of Accounting standards. There are three kinds of account as Personal Account, Real Account and Nominal Account. Let’s see the rules for those different account from scratch and in detail.

PERSONAL ACCOUNT – These are accounts of parties Name with whom the business is a carried on. Personal accounts may be:

·         Accounts of natural or physical persons. Ex: Arka Account, Debadrita Account

·         Accounts of artificial or legal persons. Ex: Embee Software Co.

·         Representative personal account. Ex: O/S Expenses Account, O/S income Account, Prepaid Expenses Account, Income Received in Advance.

Rules of Accounting:

Debit the Receiver

Credit the Giver

Real Account – These are asset accounts that appear in the Balance Sheet. They are referred to as Real Account (or Permanent Accounts) as these are owned by businesses and the balances in these accounts at the end of an accounting period will be carried over to the next period. Ex: Cash Account, Land Account, Building Account, Bank Account, Asset Account, etc.

Rules of Accounting:

What comes in Debit

What goes out Credit

Nominal Account – These are accounts of expenses and losses which a business incurs and income & gains which a business earn in the course of business. Ex: Rent Account, Interest Account, Income Account, Expenditure Account, etc.

Rules of Accounting:

All expenses and losses are Debit

All income and gains are Credit

Type of Accounts

1.    Assets

2.    Liabilities

3.    Owner’s Equity (Asset Reverse/Capital/Drawing/Profit & Loss/etc.)

4.    Revenue

5.    Expenses

Account (A/C)	Debit (Dr.)	Credit (Cr.)
Assets	+	-
Liabilities	-	+
Owner’s Equity	-	+
Revenue	-	+
Expenses	+	-

Remember this Table where Dr. / Cr. will increase.

O	A	L	E	R
Cr.	Dr.	Cr.	Dr.	Cr.

Example:             A/C Credit to Name

                             Name Debit to A/C