Three Golden Rules of Accounting

Three Golden Rules of Accounting 

• One of the most famous and commonly used terms in the field of accounting and finance is “Three golden rules of accounting”
• These rules are used to prepare an accurate journal entry which forms the very basis of accounting and act as a cornerstone for all bookkeeping.
• They are also known as the traditional rules of accounting or the rules of debit and credit.

Easy Interpretation of 3 Golden Rules of Accounting

Real Account

• If the item (real account) is coming into the business then – Debit
• If the item (real account) is going out of the business then – Credit

Personal Account

• If the person(or)legal body(or)group is receiving something – Debit
• If the person(or)legal body(or)group is giving something – Credit

Nominal Account

• If it is an expense or loss for the business – Debit
• If it is an income or gain for the business – Credit

Examples – Three Golden Rules of Accounting

Purchased furniture for 10,000 in cash.

Accounts Involved	Debit/Credit	Rule Applied
Furniture A/C	10,000	Real A/C – Dr. what comes in
To Cash A/C	10,000	Real A/C – Cr. what goes out

Paid 18,000 from the bank for rent

Accounts Involved	Debit/Credit	Rule Applied
Rent A/C	18,000	Nominal A/C – Dr. all expenses
To Bank A/C	18,000	Personal A/C – Cr. the giver

Depreciation charged for 1,00,000 on the machine

Accounts Involved	Debit/Credit	Rule Applied
Depreciation A/C	1,00,000	Nominal A/C – Dr. all expenses
To Machine A/C	1,00,000	Real A/C – Cr. what goes out

Rules of Debit and Credit According to Modern Approach

• If you are posting an entry in the journal, you may use the Modern Accounting Approach instead of three golden rules of accounting.
• You should try to use the American or modern rules of accounting to compare and find out which one suits your learning style and is easy to apply. It is true that some people find the modern approach easier than the traditionally used three golden rules of accounting.  

Example – Modern Rules of Accounting

Received cash 3,000 as rent from Unreal Pvt Ltd

Accounts Involved	Debit/Credit	Modern Rule Applied
Cash A/C	3,000	Asset A/C – Dr. the increase
To Rent A/C	3,000	Revenue A/C – Cr. the increase

Conclusion of the Golden Rules of Accounting

• You only need to identify the type of accounts involved and
• Then apply any one of the three golden rules of accounting while making a double entry

Author: Nazia Tabassum