Every procedure has some particular set of rules that apply to that special procedure to achieve maximum efficiency and reliability. These rules are very intense and critical for the good functioning of a procedure. For instance, you might come across a statement or some live quotes related to the golden rules of life.
Similarly, accounting also has a set of rules called the golden rules of accounting. There are three golden rules of accounting that we will discuss in the section given next for this article. So if you want to keep yourself up to date and right in your number game, then you must know about these three golden accounting rules and follow them keenly.
Let’s find out the details below without any delay.
3 Golden Rules of Accounting?
This is the main query we will discuss in this highly informative article. We are very familiar with the fact that accounting runs on two things that are credits and debits. And these two things go round and round with each other. Before digging into the three extraordinarily remarkable principles of accounting, we must give you a word I’ve you about debits and credits.
Debits and Credits
In accounting books, these two entities are relatively equal but quite the opposite of each other. These two things highly affect the major account types such as liabilities, equity, assets, revenues, and income.
In an account book, all the entries about credits are made on the right side. The entry of credits enhances or increases the liability equity and revenue of the business. At the same time, it decreases the expenses and asset accounts. Departmental Accounting also supports in this regard.
On the other hand, all the debit entries are added on the left side of an account. All the debit entries lower stock liability revenue accounts and equity. However, asserts or expense accounts are increased from debits.
3 Types of Accounts
Before digging into the three golden rules of counting, it is crucial to understand three major types of accounts. Three types of accounts represent and report the overall financial transactions.
1. Personal Account With Example
2. Real Account With Example
3. Nominal Account With Example
All three golden accounting rules are established concerning these accounts. With every transaction in these different types of counts, the credit and debit entries belong entirely to the account mentioned above.
These three accounts have different characteristics, and the transactions and Dealings are unique. On their specific characteristics of dealing with income, expenses, profits, liabilities, revenues, losses, and other essential things. In the next section, you will learn more about these three types of accounts regarding the golden rules of accounting.
We hope now you are much more familiar with what credits and debits and types of accounts in accounting.
Now it would be much easier for you to understand the three golden rules and four accounting principles. Let’s take a look at them
List of Accounting Golden Rules
Sounds interesting? We hope you have built up your interest in knowing more about these three golden principles of accounts. Let’s get into each of them.
1. Debit indicates what comes in, and credit indicates what goes out
This one goes best for the real accounts, or another word for absolute count is a permanent account. When we talk about the permanent account, The thing is evident that something coming into the business debits the account.
On the other hand, when something goes out of business, it can be any asset that is termed credited to the account. All the real accounts have liability, assets or equity accounts. Another thing regarding creating an account is that they don’t clear up at the end here. But all the assets or balances are taken over to the subsequent accounting.
2. Credits show income and total gains; debits show expenses and total losses
Here comes the second golden accounting rule that deals with nominal accounts. Now the question that pops into our mind is, what are nominal accounts? Nominal accounts are temporary accounts that can end up or close after every accounting period.
These temporary accounts include all the expenses, revenues, losses and gains. In this case, you need to debit the account if your business encounters any loss or expense.
Contrary to that, if your business needs two allies, your business credits’ income or total gains help here.
3. Credit serves as a giver, and debit is a receiver
Define the golden rule of accounting states that credit serves as a giver while debit as a receiver. Listen, people, this golden rule is if you receive something in your business,
debit your account. Add if you give something in your business credit to the account respectively.
Here in this golden rule of accounting, personal accounts play the game. A personal account is one that an individual or a particular organization holds.
Overall, these three sets of rules are the building blocks of the success of any business. These accounting principles horse much more advantages than anything else. You can achieve sky-high success if these three rules are implemented and followed in a business account. A good counting policy also helps increase the business model’s overall financial visibility. Moreover, It saves your precious time and overall cost or expenses.
Accounting also behaves the way towards successful decisions in a business, and you become more able to manage the transactions successfully.
In addition, you also need to have a detailed look at the transactions and make each entry accurate and reliable. To achieve good bookkeeping, you must give a full hand to these three golden accounting rules.