Scribd
Upload
5 views

3 Golden Rules of Accounting Rules to Follow, Examples, & More

The document outlines the three golden rules of accounting, which are essential for maintaining accurate financial records. These rules involve debiting and crediting accounts based on the nature of transactions, such as debiting the receiver and crediting the giver, debiting what comes in and crediting what goes out, and debiting expenses while crediting income. Additionally, it emphasizes the importance of understanding debits and credits in relation to different types of accounts.

Uploaded by

krishangarg1010
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
5 views

3 Golden Rules of Accounting Rules to Follow, Examples, & More

The document outlines the three golden rules of accounting, which are essential for maintaining accurate financial records. These rules involve debiting and crediting accounts based on the nature of transactions, such as debiting the receiver and crediting the giver, debiting what comes in and crediting what goes out, and debiting expenses while crediting income. Additionally, it emphasizes the importance of understanding debits and credits in relation to different types of accounts.

Uploaded by

krishangarg1010
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

See a Demo

Most popular blog categories

Blog Home Payroll Tips

Accounting Tips

Accountant Professional Tips

The Three Golden Rules


of Accounting You
Should Always Follow
MARIA TANSKI-PHILLIPS | JAN 06, 2023

You might have heard of the


Golden Rule in life: Treat others as
you want to be treated. But, did
you know that there’s also a
golden rule for accounting? In fact,
there are three golden rules of
accounting. And no … one of them
is not treating your accounts the
way you want to be treated.

If you want to keep your books up-


to-date and accurate, follow the
three basic rules of accounting.

Before you go any further…

Just getting started? To follow the 3


golden rules of accounting, you need
accounting books. But don’t panic. Our
FREE guide walks you through the
process of setting up your accounting
books for the first time.

Get My Free Guide!

3 Golden rules of
accounting

The world of accounting is run by


credits and debits. Debits and
credits make a book’s world go
‘round.

Before we dive into the golden


principles of accounting, you need
to brush up on all things debit and
credit.

Debits and credits are equal but


opposite entries in your
accounting books. Credits and
debits a!ect the five core types of
accounts:

• Assets: Resources owned by a


business that have economic
value you can convert into cash
(e.g., land, equipment, cash,
vehicles)

• Expenses: Costs that occur


during business operations
(e.g., wages, supplies)

• Liabilities: Amounts owed to


another person or business
(e.g., accounts payable)

• Equity: Your assets minus your


liabilities

• Income and revenue: Cash


earned from sales

A debit is an entry made on the left


side of an account. Debits increase
an asset or expense account and
decrease equity, liability, or
revenue accounts.

A credit is an entry made on the


right side of an account. Credits
increase equity, liability, and
revenue accounts and decrease
asset and expense accounts.

You must record credits and debits


for each transaction.

The golden rules of accounting


also revolve around debits and
credits. Take a look at the three
main rules of accounting:

1. Debit the receiver and credit


the giver

2. Debit what comes in and credit


what goes out

3. Debit expenses and losses,


credit income and gains

1. Debit the receiver and


credit the giver

The rule of debiting the receiver


and crediting the giver comes into
play with personal accounts. A
personal account is a general
ledger account pertaining to
individuals or organizations.

If you receive something, debit the


account. If you give something,
credit the account.

Check out a couple of examples of


this first golden rule below.

Example 1

Say you purchase $1,000 worth of


goods from Company ABC. In your
books, you need to debit your
Purchase account and credit
Company ABC. Because the giver,
Company ABC, is providing goods,
you need to credit Company ABC.
Then, you need to debit the
receiver, your Purchase account.

Date Account Debit Credit

XX/XX/XXXX Purchase 1,000

Accounts
1,000
Payable

Example 2

Say you paid $500 cash to


Company ABC for o"ce supplies.
You need to debit the receiver and
credit your (the giver’s) Cash
account.

Date Account Debit Credit

XX/XX/XXXX Supplies 500

Cash 500

2. Debit what comes in and


credit what goes out

For real accounts, use the second


golden rule. Real accounts are also
referred to as permanent
accounts. Real accounts don’t close
at year-end. Instead, their balances
are carried over to the next
accounting period.

A real account can be an asset


account, a liability account, or an
equity account. Real accounts also
include contra assets, liability, and
equity accounts.

With a real account, when


something comes into your
business (e.g., an asset), debit the
account. Credit the account when
something goes out of your
business.

Example

Let’s say you purchased furniture


for $2,500 in cash. Debit your
Furniture account (what comes in)
and credit your Cash account
(what goes out).

Date Account Debit Credit

XX/XX/XXXX Furniture 2,500

Cash 2,500

3. Debit expenses and


losses, credit income and
gains

The final golden rule of accounting


deals with nominal accounts. A
nominal account is an account that
you close at the end of each
accounting period. Nominal
accounts are also called temporary
accounts. Temporary or nominal
accounts include revenue,
expense, and gain and loss
accounts.

With nominal accounts, debit the


account if your business has an
expense or loss. Credit the account
if your business needs to record
income or gain.

Example: Expense or loss

Say you purchase $3,000 of goods


from Company XYZ. To record the
transaction, you must debit the
expense ($3,000 purchase) and
credit the income.

Date Account Debit Credit

XX/XX/XXXX Purchase 3,000

Cash 3,000

Example: Income or gain

Say you sell $1,700 worth of goods


to Company XYZ. You must credit
the income in your Sales account
and debit the expense.

Date Account Debit Credit

XX/XX/XXXX Cash 1,700

Sales 1,700

On the hunt for a simple way to


track your account balances?
Patriot’s accounting software has
you covered. Easily record income
and expenses and get back to your
business. Try it for free today!

This article has been updated from


its original publication date of March
10, 2020.

This is not intended as legal advice; for more

information, please click here.

Facebook ! Twitter " Pinterest

# LinkedIn

ACCOUNTING

GENERAL JOURNAL OPERATIONS


LEDGER ENTRIES

Stay up to date on the latest


accounting tips and training

ENTER YOUR EMAIL*

Type your email

SUBSCRIBE

You may also be interested in:

Ready, Set, Go! Mark Your


Calendars With Sales Tax
Holiday Dates

8 Fast Facts to Make Giving


Charitable Donations a
Smooth Process

The Average Cost of Living


by State, and Why Ignoring
it Could Sink Your Business

Most popular blog categories

Blog Home Payroll Tips

Accounting Tips

Accountant Professional Tips

ACCOUNTING

Accounting Reviews

Accounting Reports

Accounting FAQs

Accounting Help

Accounting Blog

PAYROLL

Full Service Payroll

Basic Payroll

Payroll Reviews

Payroll Reports

Payroll FAQs

Time & Attendance

HR Software

Payroll Help

Payroll Blog

ABOUT

Contact Info

Our Team

Careers

Open Positions

Recent Software Updates

Press Releases

Privacy Policy

Cookie Policy

Data Subject Access Request Form

Legal Disclaimer

Investor Relations

PARTNER

Accountants, CPA’s, & Bookkeepers

Franchise

Accountant Blog

Accountant Webinars

LOGIN

Try It Free for 30 Days

See a Demo

© 2023 PATRIOT SOFTWARE LLC

PATRIOT™

You might also like