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 bookkeeping.

They are also known as the traditional rules of accounting or the rules of debit and credit.

Three Golden Rules of Accounting

Application of three golden rules of accounting is only possible if you can correctly determine the type of account you are dealing with i.e. Real, Personal or Nominal Account.

 

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 Real a/c – Dr. what comes in
To Cash A/C 10,000 Real a/c – 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 Personal a/c – Dr. the receiver
To Cash A/C 15,000 Real a/c – Cr. what goes out

 

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

 


Related Topic – How to Prepare a Journal Entry (Step by Step)?

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 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 Asset a/c – Dr. increase
To Rent A/C                3000 Revenue a/c – Cr. increase

 

>Read What are Accounting Concepts?



 

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