3 Golden Rules of Accountancy
3 GOLDEN RULES OF ACCOUNTANCY
(1) Debit What comes in & credit what goes out [Real Account]
Real Accounts – All tangible assets like cash, car, furniture and intangible assets like goodwill, patents
(2) Debit the Receiver & Credit the giver [Personal Account]
Personal Accounts – Jose, cyndie or any other person or any company’s account in business
(3) Debit all the Expenses and losses & Credit all the Incomes and gains. [Nominal Account]
Nominal Accounts – All Income, Expenses, Profit, Losses Accounts
Note:- (1) Debit if there is a decrease in liability and credit if there is an increase in Liability (2) Debit if there is an increase in assets and credit if there is a decrease in Assets
Examples:-
(1) Capital Brought in Business $50000 (cash)
Cash 50000 Equity/capital 50000
[We debited cash because cash is a Real Account and it is coming in the business (Debit what comes in), Capital is a Personal account and the owner is giving the cash(credit the giver) to business that’s why we’ll credit Capital or Equity ]
(2) Truck Purchased for $10000 cash
Truck 10000 Cash 10000
[we debited Truck because Truck is a Real Account and it is coming in (debit what comes in) the business, we credited cash because it is also a Real Account but it is going out of Business (credit what goes out)]
(3) Borrowed $7000 cash from bank
Cash 7000 Notes payable 7000
[We debited Cash because cash is a Real Account and it is coming in the business (debit what comes in), we credited notes payable because Notes Payable is Personal Account (coz it is associated with a person or any personal account like a company’s name or any employee’s name or bank’s name) and when we are giving notes to bank in return of the cash received from bank.(Credit the giver)] and notes payable is an increasing liability in this case so we can recheck it with Note (1).
(1) Debit What comes in & credit what goes out [Real Account]
Real Accounts – All tangible assets like cash, car, furniture and intangible assets like goodwill, patents
(2) Debit the Receiver & Credit the giver [Personal Account]
Personal Accounts – Jose, cyndie or any other person or any company’s account in business
(3) Debit all the Expenses and losses & Credit all the Incomes and gains. [Nominal Account]
Nominal Accounts – All Income, Expenses, Profit, Losses Accounts
Note:- (1) Debit if there is a decrease in liability and credit if there is an increase in Liability (2) Debit if there is an increase in assets and credit if there is a decrease in Assets
Examples:-
(1) Capital Brought in Business $50000 (cash)
Cash 50000 Equity/capital 50000
[We debited cash because cash is a Real Account and it is coming in the business (Debit what comes in), Capital is a Personal account and the owner is giving the cash(credit the giver) to business that’s why we’ll credit Capital or Equity ]
(2) Truck Purchased for $10000 cash
Truck 10000 Cash 10000
[we debited Truck because Truck is a Real Account and it is coming in (debit what comes in) the business, we credited cash because it is also a Real Account but it is going out of Business (credit what goes out)]
(3) Borrowed $7000 cash from bank
Cash 7000 Notes payable 7000
[We debited Cash because cash is a Real Account and it is coming in the business (debit what comes in), we credited notes payable because Notes Payable is Personal Account (coz it is associated with a person or any personal account like a company’s name or any employee’s name or bank’s name) and when we are giving notes to bank in return of the cash received from bank.(Credit the giver)] and notes payable is an increasing liability in this case so we can recheck it with Note (1).