GOLDEN RULE

OF ACCOUNTING
WHAT IS ACCOUNT?

• AN ACCOUNT IS A RECORD OF THE INCREASE,DECREASE, AND

BALANCE IN AN INDIVIDUAL ITEAM OF ASSET, LIABILITY, OWNER’S
EQUITY, INCOME (REVENUE), OR EXPENSES.
 DEBIT AND CREDIT
ACCOUNT TITLE
DEBIT (DR) CREDIT(CR)

DR. SIDE CR. SIDE

DOUBLE ENTRY BOOK KEEPING

1. EVERY TRANSACTION AFFECTS AT LEAST TWO ACCOUNTS.

2. TOTAL DEBITS MUST EQUAL TOTAL CREDITS.

DEBIT CREDIT

TOTAL EQUAL TOTAL EQUAL

CLASSIFICATION OF ACCOUNTS
(TRADITIONAL APPROACH)

1. PERSONAL ACCOUNTS
2. REAL ACCOUNTS
3. NOMINAL ACCOUNTS.
 Personal Account
A personal account is a general ledger account. All accounts related to persons,
whether natural persons like individuals or artificial persons like companies, fall
in this category. 

REPREUSENTATIVE PERSONAL ACCOUNTS: CAPITAL ACCOUNT, ACCONTS PAYABLE,

ACCOUNTS RECEIVABLE ETC.

Golden Rule 1 says, 

Debit the receiver, credit the giver.
 Golden Rule 1 says, 
Debit the receiver, credit the giver.
• EXAMPLE:
1. RATAN started a business with a capital of ₹10,00,000 by depositing
into bank.
2. Payment of ₹ 50,000 to ANIL from bank.

1. 2.

Bank account Dr. 100000 Anil account Dr. 50000

To capital account Cr. 100000 To Bank account Cr. 50000
Real Account

• ALL ASSETS EXCEPT PERSONAL ACCOUNTS, WHICH ARE TANGIBLE OR

INTENGIBLE FALL UNDER CATEGORY ‘’ REAL ACCOUNT’’

• TANGIBLE REAL ACCOUNT

• BUILDING, MACHINERY, STOCK, LAND, CASH, OFFICE EQUIPMENT ETC.

• INTANGIBLE REAL ACCOUNT

• GOODWELL, PATENTS, TRADEMARK, SOFTWERE, WEBSITE ETC.
Golden Rule 2 says, 
Debit what comes in, Credit what goes out
• EXAMPLE
1. FURNITURE PURCHASE WORTH ₹ 10,000 IN CASH.
2. PAID AN AMOUNT OF ₹ 20,000 TO RATAN IN CASH.

1. 2.

FURNITURE ACCOUNT DR. 10,000 RATAN ACCOUNT DR. 20,000

TO CASH ACCOUNT CR. 10,000 TO CASH ACCOUNT CR. 20.000
Nominal Account:
•Those accounts which are associated with income, gains, losses
or expenses are known as Nominal Account.
Income & Gains Accounts:
Sales account, Interest earned, Commission earned, Profit on sale of
investment,
Expense & Losses Accounts:
Purchase account, Rent account, Wages & salary, Office
expense, Printing and stationary, Loss on sale of a fixed asset
Golden Rules of Nominal Accounts:
Debit all expenses & losses,
Credit all incomes & gains.

• EXAMPLE
1. Pays Rs.12,000 as rent
2. Earn Rs.3,000 as interest on Bank Account

1.
2.

RENT ACCOUNT DEBIT ₹ 12,000 BANK ACCOUNT DEBIT ₹ 3,000

TO BANK ACCOUNT ₹ 12,000 TO INTREST RECEIVED ACCOUNT ₹ 3,000
 Golden Rules of Accounting 
Summary

Personal Accounts: Debit the Receiver. Credit the Giver.

Real Accounts: Debit what comes in. Credit what goes out.
Nominal Accounts: Debit all expenses & losses. Credit all incomes &
gains
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