3 Golden Rules of Accounting

You might have heard of the Golden Rule in life: Treat others as you want to be treated. But, did you know that there’s also a golden rule for accounting? In fact, there are three golden rules of accounting. And no … one of them is not treating your accounts the way they want to be treated.

Golden rules convert complex bookkeeping rules into a set of principles which can be easily studied and applied. Here is how the system is applied:

Ascertain the Type of Account

The golden rules of accounting require that you ascertain the type of account in question. Each account type has its rule that needs to be applied to account for the transactions.

If you want to keep your books up-to-date and accurate, follow the three basic rules of accounting.

3 Golden rules of accounting

It’s no secret that the world of accounting is run by credits and debits. Debits and credits make a book’s world go ‘round.

Before we dive into the golden principles of accounting, you need to brush up on all things debit and credit.

Debits and credits are equal but opposite entries in your accounting books. Credits and debits affect the five core types of accounts:

  • Assets: Resources owned by a business which have economic value you can convert into cash (e.g., land, equipment, cash, vehicles)
  • Expenses: Costs that occur during business operations (e.g., wages, supplies)
  • Liabilities: Amounts owed to another person or business (e.g., accounts payable)
  • Equity: Your assets minus your liabilities
  • Income and revenue: Cash earned from sales

A debit is an entry made on the left side of an account. Debits increase an asset or expense account or decrease equity, liability, or revenue accounts.

A credit is an entry made on the right side of an account. Credits increase equity, liability, and revenue accounts and decrease asset and expense accounts.

You must record credits and debits for each transaction.

The golden rules of accounting also revolve around debits and credits. Take a look at the three main rules of accounting:

Read in details here:

GOLDEN RULES OF ACCOUNTING

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