If you’re into accounting industry and haven’t understood the golden rules of accounting then this blog post is definitely for you. To strive and thrive in this industry, one has to know what golden rules of accounting are that can be beneficial for people working in it. It is because unless you know the rules, you won’t be able to abide by the rules and run business successfully. Therefore, understating these accounting rules become necessary.
So, let’s see what golden rules of accounting you need to know.
Famous golden rules of accounting at a glance
Accounting has total 3 golden rules that you all need to know and understand. So, let’s have a look at these golden rules enlisted below.
- Debit the receiver, credit the giver
The first golden rule of accounting is debiting the receiver and credit the giver. This rule basically used in personal accounting. Here an individual gives something to the company, which becomes an inflow that’s where that person will be credited in the books of account. And receiver has to be debited.
- Debit what comes in, credit what goes out
This golden rule is used in case of real accounts. What does real account mean? A real account means machinery, land, building, etc. By default, they have a debit balance. Therefore, when you debit what comes in, you’re actually adding to the existing bank account. Same way when you credit what goes out, you actually reduce the account balance when a tangle asset goes out of the company.
- Debit all expenses and losses, credit all incomes and gains
Last but not least golden rule of accounting includes debiting all expenses and losses and crediting all incomes and gains. So, this rule is applied to people owning nominal account. Here the capital of the company is liability. That’s why it has default credit balance. So, when you credit all incomes and gains, you actually increase the capital and when debiting expense, you decrease the capital. This is how you need to do to stay in the balance.
Final overview
Guys, these were the golden rules of accounting that everyone needs to understand and follow. All you need to do is just diligently apply these rules in your business accounting and secure your finances. Without applying these rules may put your business in trouble and make things cumbersome one. Don’t let this situation happen. Just keep following the rules and keep your business finances on track.
