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Golden Rules of Debit and Credit for Accounting

Seep Gupta
Seep Gupta at August 05, 2022

Golden Rules for Accounting- An Overview

Debit and Credit for Accounting is really crucial for any economic entity to provide accurate and complete details of its financial information to all its stakeholders. The details must present an accurate picture of the entity. An entity cannot afford any sort of mistake even the tiniest one. There has to be some sort of uniformity in accounting.

There are certain golden rules in everything, so as Debit and Credit for Accounting. These golden rules are essential for bringing uniformity and ensuring accuracy in accounting financial transactions. There are three golden rules for credit and debit in accounting. But before grasping the minute details of golden rules, first, we need to understand the types of accounts.

Different Types of Accounts

Basically, there are three types of accounts. Understanding the types of accounts is important to understand the golden rules of debit and credit in accounting. Every account roughly falls in one or another category. These categories are further defined below in a detailed manner.

Real Account

The bank account is a perfect example of a real account. A real account is a type of account that is generally related to assets and liabilities. These types of accounts are not closed at the end of the year like other accounts. These are generally carried forward.

Nominal Account

A nominal account is a type of general ledger account that is related to all the incomes, losses and gains, and expenses. An interest account can be a perfect example of a nominal account. A nominal account is a type of account that a person closes at the end of every accounting year.

Personal Account

A creditor account or someone’s bank account can be great examples of personal accounts. A personal account basically is a type of ledger account that is related to individuals, firms and associations. It can belong to a specific company or an organisation too.

The Three Golden Rules of Accounting

The golden rules change with the nature of each type of account. For each type of account, there is a set of golden rules. Hence they are known as the three golden rules of accounting. It determines the treatment of all the financial transactions done by any business or organization. These golden rules for each account are given below and defined separately:-

Real Account

Golden rules associated with the real account are:-

  • Debit what comes into the business
  • Credit whatever goes out from the business

Nominal Account

Golden rules associated with the nominal account are:-

  • Debit the expense or loss of the business
  • One should credit the income or gain of the business

Personal Account

Golden rules associated with the personal account are:-

  • Debit the receiver
  • Credit the giver

Further, below these three rules are explained in great detail.Debit What Comes into the Business and Credit Whatever Goes Out from the Business

  • These are the golden rules associated with real accounts. Real accounts are also known as permanent accounts. A real account can be anything be it a liability account, equity account, or asset account. It also includes contra assets.
  • In a real account when something especially an asset comes into the business, debit the account, and when something goes out of the business credit that account.
  • Debit the Expense or Loss of the Business and Credit the Income or Gain of the Business
  • These are the golden rules associated with the nominal account. Nominal accounts are also known as temporary accounts. Nominal or temporary accounts include revenue, expense, gain, and loss accounts.
  • In nominal accounts, debit the account if the business has an expense or loss and credit the account if the business needs to record income or gain.

Debit the Receiver and Credit the Giver

This golden rule is associated with personal accounts. A personal account is a type of account that is related to an individual, a specific organization, or a company. In personal accounts, if a person has received something then debit the account and credit the account if a person has given something.

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