3 Golden Rules of Accounting With Examples

The three golden rules of accounting are fundamental principles that simplify bookkeeping and ensure consistency in financial records. These rules are essential for standardizing accounting practices.

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Types of Accounts

1. Nominal Account

2. Real Account

• Tangible Real Accounts: Record physical assets like cash, inventory, and stationery.
• Intangible Real Accounts: Record non-physical assets that have monetary value, such as trademarks, copyrights, goodwill, and patents.

Also Read: Elements of Cost in Cost Accounting

3. Personal Account

• Natural Personal Account: Accounts for human beings, including creditors, debtors, capital, and drawings accounts.
• Artificial Personal Account: Accounts for entities that act as separate legal entities, such as government bodies, cooperatives, partnerships, and companies.
• Representative Personal Account: Accounts that represent actual or artificial persons, often in cases of prepaid or outstanding expenses or accrued income. Examples include prepaid rent and unearned brokerage accounts.

3 Golden Rules of Accounting

'Debit all expenses and losses; Credit all incomes and gains'

'Debit the receiver, Credit the giver'

'Debit what comes in, Credit what goes out'

Golden Rules of Accounting Examples

1. Initial Investment: You invest $1,000 to start the business. So, you record this as capital.
2. Rent Expense: Paying rent is an expense. You debit the rent account and credit the cash account with $200.
3. Inventory Purchase: Buying lemons and sugar is an expense. Since it's on credit, you credit the supplier's account and debit your inventory account with $300.
4. Sales Income: Selling lemonade brings in money, so it's income. Credit the sales account and debit cash with $500.
5. Cash Purchase from Supplier: When you buy more supplies and pay in cash, debit the supplier's account and credit cash with $100.
6. Payment to Friend: Paying your friend is a personal transaction. Debit the friend's account and credit cash with $50.