HomeAccounting Basics

Golden Rules of Accounting with example

Like Tweet Pin it Share Share Email

Golden rule is said to be the foundation stone of accounting, This is the rule using by which all accounting & Financial report are built. The term ‘Golden rules of accounting‘ is popularly used in Indian Accounting. In other part of the world it is called Rules of Debit & Credit.This is the rules of journalising the transactions. In double entry system, there are two aspects for each aspects of transactions are called ‘Debit’ and credit. The journal entry wrote after analyzing these two aspects.

Golden Rules for types of accounts

As we know there are three types of account in double entry system. Each type of accounts have different rule to find out the Debit & Credit.

Recommend Read: Examples of Golden Rules of Accounting 

Rule of Real Account.

Real Account is an account does not close at the end of the Financial year and the balances are  carried forward to the next year.Generally Real accounts are accounts which are related to Assets.

  • Debit What comes In.
  • Credit What Goes Out.

Explanation: Real account is related asset,Hence When an Asset is moving out of business,That asset should be Credited,and when an asset coming in should be debited.

Tips for Debit and Credit

Debit When asset Increases.

Credit When asset Decreases.

Real Account Example 1 :Purchased Machinery from ABC for  Credit  5000, Find out the dual aspect.

Aspect 1 = Machinery Increases or coming in  Business

Aspect 2 = Liability Increased or Credit the Given (refer the rule of personal account)

journal entry 

JOURNAL
Date Particulars JF Debit Creidt
xx/xx/xxxx Machinery a/c …..Dr 5000
(Debit What comes In)
 To; ABC A/c 5000
(Credit What Goes Out)
( Purchased Machinery from ABC for  Credit  )

Real Account Example 2 :  Computer Purchased For cash  25000

In this example, the two aspects are Computer & Cash , Both of these are assets and it is one of the best example of real account transactions.

Computer -What Comes in  = Debit

Cash – What Goes Out = Credit

computer purchase journal entry in real account

Rules of personal account.

These are accounts related to Persons,Institutions,Companies, Trust or other form of Institutions.

  • Debit the receiver
  • Credit the giver

Explanation:  Personal account is related to individual or artificial persons created by law like Corporates, LLP,LLC ,LTD etc.

When Money is  paid or to be paid  to a Person or company, That person should be debited.

When Money is received or to be received  from a person or company that person should be Credited.

Personal Account Example 1: Purchased goods for 10000 from  Abraham Mathew

The journal entry

Credit The giver  -Here Giver is Abraham Mathew hence credited.

Debit All Expense – Purchase is expense to the company

JOURNAL
Date Particulars JF Debit Creidt
xx/xx/xxxx Purchase a/c …..Dr 10000
(Debit All Expenses)
 To; Abraham Mathew A/c 10000
(Credit The Giver)
( Purchased goods for 10000 from  Abraham Mathew)

Tip : Credit  when Liability Increases  ( Here liability increases ,amount payable to Abraham Mathew) Debit When Liability Decreases.

Personal Account Example 2 :Received cash from Micheal Trade Lines 5000 towards their pending payment.

In this example the components of transactions are Cash and Micheal Trade Lines. Cash is asset, hence related to real account where as Micheal Trade links is a Customer or Buyer who buys goods from us.Hence Micheal Trade Links is a person or related to personal account.

Cash – What comes in – Debit

Micheal Trade Lines – The Giver – Credit

The Journal can be draft as follows.

Personal account example entry

Rules for Nominal Account

Nominal accounts report to revenue and expenses or loss or gains.It is a temporary account and will be closed at the end of every Financial year by transferring the total to the profit and loss account.

  • Debit All expense or Losses
  • Credit All Income or Gains.

Example:

Nominal Account Example 1 : Commission Paid   1000

The journal Entry

Nominal account rule – Debit all Expense -Commission is the expense

Real account rule – Credit what goes out – Cass (Asset) is goes Out

JOURNAL
Date Particulars JF Debit Creidt
xx/xx/xxxx Commision  a/c …..Dr 10000
(Debit All Expenses)
 To; Cash  A/c 10000
(Credit What Goes Out)
( Commission Paid  )

Nominal Account Example 2 : Bank Interest credited to SBI Bank account Rs 1200

Here the two sides of transactions are State Bank of India & Bank Interest. State Bank of India is an asset account, that is Real Account and Bank Interest is an Income account, hence related Nominal account.

State Bank Account – What Comes In – Debit

Bank charges – All Incomes –Credit

The journal entry is drafted as.

Journal entry for nominal account

Tip: Debit When Expense Increase and credit when Income Increases.

Comments (0)

Leave a Reply

Your email address will not be published. Required fields are marked *

shares
error: Content is protected !!