Golden Rules of Accounting with Examples
Definition
The three golden rules of accounting decide which account is debited and which is credited: 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.
| Term | Golden rules of accounting |
|---|---|
| In Hindi | लेखांकन के स्वर्णिम नियम |
| Area | Accounting |
| Search phrase | golden rules of accounting |
| Try it | Journal entries |
लेखांकन के स्वर्णिम नियम — हिंदी में अर्थ
व्यक्तिगत खाता — पाने वाले को डेबिट, देने वाले को क्रेडिट। वास्तविक खाता — जो आता है उसे डेबिट, जो जाता है उसे क्रेडिट। नाममात्र खाता — सभी खर्च और हानि डेबिट, सभी आय और लाभ क्रेडिट।
The three types of accounts
Personal accounts are people and organisations — customers, suppliers, banks, the owner's capital. Real accounts are things the business owns — cash, stock, machinery, buildings. Nominal accounts are expenses, losses, incomes and gains — rent, wages, sales, interest received.
Identify the type of each account in a transaction first; the rule for that type then tells you whether it is debited or credited.
Golden rules with examples
Bought machinery for cash ₹2,00,000: Machinery (real, comes in) Dr; Cash (real, goes out) Cr. Paid rent ₹30,000: Rent (nominal, expense) Dr; Cash Cr. Sold goods on credit to Sharma Traders ₹50,000: Sharma Traders (personal, receiver) Dr; Sales (nominal, income) Cr.
Example
Paid ₹10,000 to supplier Mehta Steel: Mehta Steel A/c Dr ₹10,000 (receiver); To Bank A/c ₹10,000 (real, goes out).
Related tools and guides
Frequently asked questions
What are the 3 golden rules of accounting?
Debit the receiver, credit the giver (personal); debit what comes in, credit what goes out (real); debit expenses and losses, credit incomes and gains (nominal).
Which rule applies to a bank account?
A bank account is treated as a personal account: debit the bank when money is deposited (the bank receives), credit it when money is withdrawn.
Is capital a personal account?
Yes. Capital is the owner's account, so it follows debit the receiver, credit the giver — capital introduced is credited.
Are golden rules used in the modern approach?
The modern approach classifies accounts as assets, liabilities, capital, income and expenses, but gives the same debits and credits. Accounting software applies them automatically.
Related terms
- Accounts receivableAccounts receivable is the money customers owe a business for goods or services already supplied on credit. It is shown as trade receivables (debtors) under current assets.
- Accrual vs cash basis of accountingUnder the accrual (mercantile) basis, income and expenses are recorded when they are earned or incurred, whatever the payment date. Under the cash basis, they are recorded only when cash is actually received or paid.
- Balance sheetA balance sheet is a statement of what a business owns (assets) and what it owes (liabilities and owners' equity) on a particular date. Total assets always equal total equity plus liabilities.
- Cash conversion cycleThe cash conversion cycle (CCC) is the number of days between paying for raw material and collecting cash from the customer for the finished goods: days inventory outstanding plus days sales outstanding minus days payables outstanding.
- Contra entryA contra entry is a transaction between cash and bank accounts of the same business — such as cash deposited into the bank or cash withdrawn for office use — where both the debit and the credit side are cash or bank.
- Contribution marginContribution margin is selling price minus variable cost. It is the amount each sale contributes first towards fixed costs and then to profit; as a percentage of sales it is called the contribution margin ratio or P/V ratio.