{"id":1012,"date":"2022-06-13T10:10:23","date_gmt":"2022-06-13T10:10:23","guid":{"rendered":"https:\/\/aizaconsultants.com\/?p=1012"},"modified":"2022-06-13T12:53:44","modified_gmt":"2022-06-13T12:53:44","slug":"golden-rules-of-accounting","status":"publish","type":"post","link":"https:\/\/aizaconsultants.com\/index.php\/2022\/06\/13\/golden-rules-of-accounting\/","title":{"rendered":"Golden Rules of Accounting"},"content":{"rendered":"<div class=\"fusion-fullwidth fullwidth-box fusion-builder-row-1 fusion-flex-container nonhundred-percent-fullwidth non-hundred-percent-height-scrolling\" style=\"background-color: rgba(255,255,255,0);background-position: center center;background-repeat: no-repeat;border-width: 0px 0px 0px 0px;border-color:var(--awb-color3);border-style:solid;\" ><div class=\"fusion-builder-row fusion-row fusion-flex-align-items-center fusion-flex-justify-content-center\" style=\"max-width:1310.4px;margin-left: calc(-4% \/ 2 );margin-right: calc(-4% \/ 2 );\"><div class=\"fusion-layout-column fusion_builder_column fusion-builder-column-0 fusion_builder_column_3_5 3_5 fusion-flex-column\"><div class=\"fusion-column-wrapper fusion-flex-justify-content-flex-start fusion-content-layout-column\" style=\"background-position:left top;background-repeat:no-repeat;-webkit-background-size:cover;-moz-background-size:cover;-o-background-size:cover;background-size:cover;padding: 0px 0px 0px 0px;\"><div class=\"fusion-text fusion-text-1\" style=\"text-align:left;\"><p>Financial accounting is more than just book-keeping. In accounting, every transaction has a dual entry \u2013 debit and credit. It is important to identify which account has to be credited and which one debited. This is the dual entry system of accounting. Financial accounting revolves around three rules, known as the golden rules of accounting. These golden rules ensure systematic recording of financial transactions. The golden rules simplify the complex book-keeping rules into a set of principles that are easily understood, studied, and applied.<\/p>\n<\/div><style type=\"text\/css\">@media only screen and (max-width:1200px) {.fusion-title.fusion-title-1{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important;margin-left:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-1{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important; margin-left:0px!important;}}<\/style><div class=\"fusion-title title fusion-title-1 fusion-sep-none fusion-title-text fusion-title-size-three\" style=\"margin-top:10px;margin-right:0px;margin-bottom:20px;margin-left:0px;\"><h3 class=\"title-heading-left fusion-responsive-typography-calculated\" style=\"margin:0;--fontSize:36;line-height:1.3;\">Types of Accounts<\/h3><\/div><div class=\"fusion-text fusion-text-2\" style=\"text-align:left;\"><p>The golden rules of accounting help in documenting the financial transactions in ledgers. These golden rules are based on the type of account. Each transaction will have a debit and credit entry and belong to one of the following three types of accounts.<\/p>\n<ul>\n<li aria-level=\"1\">Real Account<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\">Personal Account<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\">Nominal Account<\/li>\n<\/ul>\n<p><strong>Real Account<\/strong><\/p>\n<p>A real account is a general ledger account that reflects all the transactions relating to assets and liabilities. It comprises tangible and intangible assets. Tangible assets such as furniture, land, building, machinery, etc. On the other hand, intangible assets such as goodwill, copyright, patents, etc.<\/p>\n<p>Real accounts are carried forward to the following year, therefore, are not closed at the end of the financial year. Furthermore, a real account appears in the balance sheet. A furniture account is a type of real account.<\/p>\n<p><strong>Personal Account<\/strong><\/p>\n<p>A personal account is a general ledger account relating to persons. It can be natural persons like individuals or artificial persons like companies, firms, associations, etc. When company A receives money or credit from another business or individual, company A becomes the receiver. And, the other business or individual who gives it becomes the giver, in the case of a personal account. A creditor account is a type of personal account.<\/p>\n<p><strong>Nominal Account<\/strong><\/p>\n<p>A nominal account is a general ledger account relating to all business income, expenses, profit and losses. It accounts for all transactions pertaining to one fiscal year. As a result, the balances are reset to zero and can start afresh. An interest account is a type of nominal account.<\/p>\n<\/div><\/div><style type=\"text\/css\">.fusion-body .fusion-builder-column-0{width:60% !important;margin-top : 20px;margin-bottom : 20px;}.fusion-builder-column-0 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 3.2%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 3.2%;}@media only screen and (max-width:1200px) {.fusion-body .fusion-builder-column-0{width:66.666666666667% !important;order : 0;}.fusion-builder-column-0 > .fusion-column-wrapper {margin-right : 2.88%;margin-left : 2.88%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-0{width:100% !important;order : 0;margin-top : 0px;}.fusion-builder-column-0 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}<\/style><\/div><div class=\"fusion-layout-column fusion_builder_column fusion-builder-column-1 fusion_builder_column_3_5 3_5 fusion-flex-column\"><div class=\"fusion-column-wrapper fusion-flex-justify-content-flex-start fusion-content-layout-column\" style=\"background-position:left top;background-repeat:no-repeat;-webkit-background-size:cover;-moz-background-size:cover;-o-background-size:cover;background-size:cover;padding: 0px 0px 0px 0px;\"><style type=\"text\/css\">@media only screen and (max-width:1200px) {.fusion-title.fusion-title-2{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important;margin-left:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-2{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important; margin-left:0px!important;}}<\/style><div class=\"fusion-title title fusion-title-2 fusion-sep-none fusion-title-text fusion-title-size-two\" style=\"margin-top:10px;margin-right:0px;margin-bottom:20px;margin-left:0px;\"><h2 class=\"title-heading-left fusion-responsive-typography-calculated\" style=\"margin:0;--fontSize:48;line-height:1.2;\"><b>3 Golden Rules of Accounting<\/b><\/h2><\/div><div class=\"fusion-text fusion-text-3\" style=\"text-align:left;\"><p>Golden rules of account form the basis for bookkeeping. As per the golden rules of accounting, you must ascertain the type of account for each transaction. Each type of account has its own set of rules that needs to be applied for each transaction. Following are the three golden rules of accounting:<\/p>\n<p><strong>Rule 1: Debit What Comes In, Credit What Goes Out.<\/strong><\/p>\n<p>This rule applies to real accounts. Furniture, land, buildings, machinery, etc., are included in real accounts. By default, they have a debit balance. As a result, debiting what is coming in adds to the existing account balance. Similarly, when a tangible asset leaves the firm, crediting what goes out reduces the account balance.<\/p>\n<p><strong>Rule 2: Debit the Receiver, Credit the Giver.<\/strong><\/p>\n<p>This rule applies to personal accounts. When a real or artificial person donates something to the organisation, it becomes an inflow, and the person must be credited in the books. Conversely, the receiver must be debited.<\/p>\n<p><strong>Rule 3: Debit All Expenses and Losses, Credit all Incomes and Gains.<\/strong><\/p>\n<p>This rule applies to nominal accounts. A company\u2019s capital is its liability. As a result, it has a credit balance. Crediting all the income and gains will increase the capital. On the other hand, the capital reduces when expenses and losses are debited.<\/p>\n<\/div>\n<div class=\"table-1\">\n<table width=\"100%\">\n<thead>\n<tr>\n<th align=\"left\"><b>Golden Rules of Accounting<\/b><\/th>\n<th align=\"left\"><b>Real Account<\/b><\/th>\n<th align=\"left\"><b>Personal Account<\/b><\/th>\n<th align=\"left\"><b>Nominal Account<\/b><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td align=\"left\">Debit<\/td>\n<td align=\"left\">What comes in<\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">The receiver<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">All expenses and losses<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\">Credit<\/td>\n<td align=\"left\">What goes out<\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">The giver<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">All incomes and gains<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<div class=\"fusion-text fusion-text-4\" style=\"text-align:left;\"><p><strong>Example<\/strong><\/p>\n<p>Let\u2019s understand the nature of the golden rules and the accounts with the help of an example. Following are the list of transactions:<\/p>\n<ul>\n<li aria-level=\"1\">Company ABC starts its business with a capital of AED 1,00,000.<\/li>\n<li aria-level=\"1\">Rents a property worth AED 25,000.<\/li>\n<li aria-level=\"1\">Purchases goods worth AED 50,000 on credit from Company XYZ.<\/li>\n<li aria-level=\"1\">Sells goods worth AED 75,000.<\/li>\n<li aria-level=\"1\">Pays cash for goods purchased from Company XYZ.<\/li>\n<li aria-level=\"1\">Pays salary worth AED 50,000 to employees.<\/li>\n<\/ul>\n<\/div><style type=\"text\/css\">@media only screen and (max-width:1200px) {.fusion-title.fusion-title-3{margin-top:30px!important; margin-right:0px!important;margin-bottom:20px!important;margin-left:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-3{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important; margin-left:0px!important;}}<\/style><div class=\"fusion-title title fusion-title-3 fusion-sep-none fusion-title-text fusion-title-size-six\" style=\"margin-top:30px;margin-right:0px;margin-bottom:20px;margin-left:0px;\"><h6 class=\"title-heading-left fusion-responsive-typography-calculated\" style=\"margin:0;--fontSize:18;--minFontSize:18px;line-height:1.5;\">Firstly, let us identify the different accounts involved and the types of accounts for each of the transactions:<\/h6><\/div>\n<div class=\"table-1\">\n<table width=\"100%\">\n<thead>\n<tr>\n<th align=\"left\">Transactions<\/th>\n<th align=\"left\">Accounts Involved<\/th>\n<th align=\"left\">Type of Accounts<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Capital of AED 1,00,000<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Cash A\/c; Capital A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Real Account; Personal Account<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Rent worth AED 25,000<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Rent A\/c; Cash A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Nominal Account; Real Account<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Purchases goods worth AED 50,000 on credit from Company Y<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Purchases A\/c; Company Y A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Nominal Account; Personal Account<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Sells goods worth AED 75,000<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Cash A\/c; Sales A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Real Account; Nominal Account<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Pays cash for goods purchased from Company Y<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Company Y A\/c; Cash A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Personal Account; Real Account<\/span><\/td>\n<\/tr>\n<tr>\n<td align=\"left\"><span style=\"font-weight: 400;\">Pays salary worth AED 50,000 to employees<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Salary A\/c; Cash A\/c<\/span><\/td>\n<td align=\"left\"><span style=\"font-weight: 400;\">Nominal Account; Real Account<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<style type=\"text\/css\">@media only screen and (max-width:1200px) {.fusion-title.fusion-title-4{margin-top:20px!important; margin-right:0px!important;margin-bottom:20px!important;margin-left:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-4{margin-top:10px!important; margin-right:0px!important;margin-bottom:20px!important; margin-left:0px!important;}}<\/style><div class=\"fusion-title title fusion-title-4 fusion-sep-none fusion-title-text fusion-title-size-two\" style=\"margin-top:20px;margin-right:0px;margin-bottom:20px;margin-left:0px;\"><h2 class=\"title-heading-left fusion-responsive-typography-calculated\" style=\"margin:0;--fontSize:48;line-height:1.2;\">Conclusion<\/h2><\/div><div class=\"fusion-text fusion-text-5\" style=\"text-align:left;\"><p>Golden rules of accounting lay the foundation for preparing financial accounts. The company must record every transaction. Each transaction is recorded as a journal entry and then as a ledger. You should ascertain the account each transaction belongs to and then do journal entries based on the three golden rules. Therefore, it is a must to know the golden rules of accounting for the purpose of bookkeeping.<\/p>\n<\/div><\/div><style type=\"text\/css\">.fusion-body .fusion-builder-column-1{width:60% !important;margin-top : 20px;margin-bottom : 20px;}.fusion-builder-column-1 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 3.2%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 3.2%;}@media only screen and (max-width:1200px) {.fusion-body .fusion-builder-column-1{width:66.666666666667% !important;order : 0;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 2.88%;margin-left : 2.88%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-1{width:100% !important;order : 0;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}<\/style><\/div><\/div><style type=\"text\/css\">.fusion-body .fusion-flex-container.fusion-builder-row-1{ padding-top : 0px;margin-top : 0px;padding-right : 0px;padding-bottom : 0px;margin-bottom : 0px;padding-left : 0px;}@media only screen and (max-width:640px) {.fusion-body .fusion-flex-container.fusion-builder-row-1{ padding-right : 0px;padding-bottom : 0px;padding-left : 0px;}}<\/style><\/div>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":2491,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17],"tags":[],"class_list":["post-1012","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting"],"_links":{"self":[{"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/posts\/1012","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/comments?post=1012"}],"version-history":[{"count":16,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/posts\/1012\/revisions"}],"predecessor-version":[{"id":2492,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/posts\/1012\/revisions\/2492"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/media\/2491"}],"wp:attachment":[{"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/media?parent=1012"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/categories?post=1012"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/aizaconsultants.com\/index.php\/wp-json\/wp\/v2\/tags?post=1012"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}