What are 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”. The phrase itself shows that these rules form the very basis of accounting and act as a cornerstone for all record keeping. They are also called the traditional rules of accounting or the rules of debit and credit.

 

Three Golden Rules of Accounting

The application of the above rules is only possible if you can correctly determine the kind of account you are dealing with.

 

Examples – Three Golden Rules of Accounting (Traditional)

 

  • Purchased furniture for 10,000 in cash
 Accounts Involved  Debit/Credit  Rule Applied
 Furniture A/C  10,000  Furniture is real a/c so Dr. what comes in
   To Cash A/C  10,000  Cash is a real a/c so Cr. what goes out

 

  • Paid 15,000 cash to Unreal Pvt Ltd.
 Accounts Involved  Debit/Credit  Rule Applied
 Unreal Pvt Ltd. A/C  15,000  Unreal Pvt Ltd. is a personal a/c so Dr. the receiver
   To Cash A/C  15,000  Cash is a real a/c so Cr. what goes out

 

  •  Paid 18,000 from the bank as rent.
 Accounts Involved  Debit/Credit  Rule Applied
 Rent A/C  18,000  Rent is a nominal a/c so Dr. the expenses
   To Bank A/C  18,000  Bank is a personal a/c so Cr the giver

 


 

Rules of Debit and Credit According to Modern Approach

If you are passing an entry in the journal, you may use the Modern Accounting Approach instead of the usual Traditional Approach.

You should try to use the modern approach at least once to find out which one is easier to understand and apply. It is true that some people find the modern approach easier to apply than the traditional golden rules of accounting.

Modern Rules

 

Example – Modern Rules of Accounting

  • Received cash 3000 as rent from Unreal Pvt Ltd.
 Accounts Involved  Debit/Credit  Modern Rule Applied
 Cash A/C  3000  Cash is an asset a/c so Dr. increase
   To Rent A/C                 3000  Rent is revenue a/c so Cr. increase

 

>Read What are Accounting Concepts?