Forums Accounting The Golden Rules of Accounting

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    kritinidhi
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    The Golden Rules of Accounting

    #16361

    kritinidhi
    Member

    Accounting is a process of recording, classifying, summarizing and communicating financial transactions of the business. In other words, accounting is a process of keeping financial records.

    The golden rules of accounting are:

    1. Real Accounting
    2. Nominal Accounting
    3. Personal Accounting

    Before moving further, we should know about Debit and Credit.

    Debit and Credit are terms used in accounting and bookkeeping. Debit means the left side of the account while Credit means the right side of the account. The words have opposite meaning, Debit means receiving and Credit means giving in business accounts.

    REAL ACCOUNTING-

    This principle states that Debit what comes in and Credit what goes out. Real accounts include machinery, land, building etc. According to this, when we debit what comes in, we are adding to the existing balance. And when we credit what goes out, we are reducing the balance. This is what we actually need.

    NOMINAL ACCOUNTING-

    This principle states that Debit all losses and expenses and Credit all gains and revenue. According to this, when we credit gains, we increase capital and when we debit expenses, we decrease the capital. this is what we exactly need to maintain balance in the business.

    PERSONAL ACCOUNTING-

    This principle states that Debit the receiver and Credit the giver. According to this principle, when a person gives something to the organization, it becomes an inflow hence, he needs to be credited in the books of accounts and true for the converse, which is why the receiver needs to be debited.

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