The Golden Rules of Accounting: Easy-to-Understand Examples
In accounting, there are three Golden Rules that everyone must follow while recording transactions. These rules ensure that every financial entry is recorded accurately and in accordance with the principles of double-entry bookkeeping.
Rule | Explanation | Example |
1. Debit the Receiver, Credit the Giver | For personal accounts, debit the person receiving and credit the one giving. | If you borrow 10,000 from your friend: Debit: Loan 10,000 (Receiver); Credit: Your Friend 10,000 (Giver). |
2. Debit What Comes In, Credit What Goes Out | For real accounts, debit the item coming into the business and credit the one going out. | If you buy a computer worth 50,000: Debit: Computer 50,000 (What comes in); Credit: Cash 50,000 (What goes out). |
3. Debit All Expenses, Credit All Incomes | For nominal accounts, debit all expenses and credit all incomes. | If you earn 5,000 in sales and spend 2,000 on rent: Debit: Rent 2,000 (Expense); Credit: Cash 5,000 (Income). |
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