3 Golden Rules of Accounting
Definition
The Three Golden Rules of Accounting are fundamental principles for recording financial transactions in double-entry bookkeeping (debit, credit), classifying accounts into personal, real, and nominal accounts.
Golden Rules of Accounting
1. Personal Account
Rule: Debit the Receiver & Credit the Giver
Personal accounts refer to accounts related to individuals, companies, or organizations. When someone gives something (cash, goods, services), they are credited, and when someone receives something, they are debited
2. Real Account
Rule: Debit What Comes IN & Credit What Goes Out
Real accounts are linked to assets, both tangible and intangible, belonging to a business. They debit assets when they enter and credit them when they leave.
3. Nominal Account
Rule: Debit all Expenses, Loss & Credit all Incomes, Gains
Nominal accounts track a business's expenses, losses, incomes, and gains, with debits for expenses and credits for income or gains.
How to Identify (Personal, Real, Nominal)
1. Personal Account - If the account represents a person or a business entity
Example: Creditor, Debtor, Capital Account, Drawings Account.
2. Real Account - Relates to assets and liabilities, either tangible or intangible.
Example: Tangible (machinery, land, building), Intangible (patents, goodwill).
3. Nominal Account - Relates to expenses, losses, incomes, and gains
Example: Salary Account, Rent Account, Sales Account, Electricity etc.
