The Golden Rules of Accounting are a set of three basic rules that guide how transactions are recorded in accounting books. These rules determine which account is debited and which is credited.
They are mainly used in traditional accounting and are still very important for learning accounting basics.
Types of Accounts in Accounting
Before understanding the golden rules, it is important to know the three types of accounts:
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Personal Account
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Real Account
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Nominal Account
Each account type follows a different golden rule.
1. Golden Rule of Personal Account
Rule:
Debit the Receiver, Credit the Giver
Meaning:
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The person or organization receiving value is debited
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The person or organization giving value is credited
Example:
If Ram pays ₹5,000 to Shyam:
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Shyam’s Account → Debit
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Ram’s Account → Credit
2. Golden Rule of Real Account
Rule:
Debit What Comes In, Credit What Goes Out
Meaning:
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When an asset comes into the business → Debit
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When an asset goes out of the business → Credit
Example:
If a company purchases furniture for cash:
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Furniture Account → Debit
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Cash Account → Credit
3. Golden Rule of Nominal Account
Rule:
Debit All Expenses and Losses, Credit All Incomes and Gains
Meaning:
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Expenses and losses are debited
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Incomes and gains are credited
Example:
If rent of ₹10,000 is paid:
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Rent Account → Debit
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Cash Account → Credit
Summary Table of Golden Rules of Accounting
| Account Type | Golden Rule |
|---|---|
| Personal Account | Debit the Receiver, Credit the Giver |
| Real Account | Debit What Comes In, Credit What Goes Out |
| Nominal Account | Debit Expenses & Losses, Credit Incomes & Gains |
Importance of Golden Rules of Accounting
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Helps maintain accuracy in accounting records
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Reduces chances of errors
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Makes financial statements reliable
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Easy for students and beginners
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Foundation of double-entry system
Difference Between Golden Rules and Modern Accounting
While modern accounting uses the accounting equation approach, the golden rules are still widely taught and used for:
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Learning accounting basics
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Manual bookkeeping
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Small business accounting
Both methods aim to achieve accurate debit and credit entries.
Golden Rules of Accounting with Practical Examples
| Transaction | Debit | Credit |
|---|---|---|
| Purchased goods for cash | Purchases A/c | Cash A/c |
| Received commission | Cash A/c | Commission Income A/c |
| Paid salary | Salary A/c | Cash A/c |
| Bought machinery on credit | Machinery A/c | Supplier A/c |
Conclusion
The Golden Rules of Accounting are essential for anyone learning or practicing accounting. By understanding these three rules and their application, you can easily identify debit and credit entries for any transaction.
Whether you are a student, accountant, or business owner, mastering these rules will help you maintain accurate financial records.