Accounting Rules – What are the Golden Rules of Accounting?
- Account & Audit|Blog|
- 2166 Views
- 3 Min Read
- By Taxmann
- Last Updated on 13 July, 2022
Benefits of Accounting Rules:
Accounting Rules of Debit and Credit:
There are rules of debit and credit to record transactions, one is the traditional approach and the other is the modern approach, both the approaches have been defined in detail below:
Golden Rules of Accounting (Traditional Approach):
Golden rules of accounting are the basic accounting rules on the basis of which accounting entries are recorded.
1. Personal Account:
2. Real Account:
3. Nominal Account:
The rule related to nominal account states that debit all expenses and losses, credit all incomes and gains. In other words, if any expense or loss is incurred for the business, the expense or loss account shall be debited and if any income or gain is earned in a business, income account or gain/profit account shall be credited. For example: If salaries are paid to employees then salary is an expense and hence salary account shall be debited. Likewise any rent received shall be credited to rent account as it is an income.
Modern Rules of accounting (Classification of Accounts):
As per modern rules of accounting, the transaction will be categorized into 6 heads or accounts and any increase or decrease in such account will either be debited or credited in the manner shown in the table given below:
|Types of Account||Account to be debited||Account to be credited|
B (Debtor) Account Dr. To Sales Account (Being goods sold to B on credit) Hence, it can be concluded that accounting rule is basis of accounting. Once a transaction has been done, it shows how that transaction should be recorded in the books.
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