What are the Three Golden Rules of Accounting?
Golden rules are used to prepare an accurate journal entry which forms the very basis of accounting and act as a cornerstone for all bookkeeping. This is 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 its an expense or loss for the business – Debit
If its an income or gain for the Business – Credit
While making a journal entry there are essentially three types of accounts i.e. Real, Personal and Nominal. Each account has a specific rule that needs to be applied and it is utmost important to identify the account correctly for proper application of the three golden rules of accounting.
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 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 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 |
- Goods sold for 5,000 on credit to Mr Unreal.
| Accounts Involved | Debit/Credit | Rule Applied |
| Mr Unreal A/C | 5,000 | Personal a/c – Dr. the receiver |
| To Sales | 5,000 | Nominal a/c – Cr all incomes |
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 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 |
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