The
Golden Rules of Accounting
- Debit The
Receiver, Credit The Giver
This principle is used in
the case of personal accounts. When a person gives something to the
organization, it becomes an inflow and therefore the person must be credit in
the books of accounts. The converse of this is also true, which is why the
receiver needs to be debited.
- Debit What Comes In, Credit What Goes Out
This principle is applied in
case of real accounts. Real accounts involve machinery, land and building etc.
They have a debit balance by default. Thus when you debit what comes in, you
are adding to the existing account balance. This is exactly what needs to be
done. Similarly when you credit what goes out, you are reducing the account
balance when a tangible asset goes out of the organization.
- Debit All Expenses And Losses, Credit All Incomes And Gains
This rule is applied when
the account in question is a nominal account. The capital of the company is a
liability. Therefore it has a default credit balance. When you credit all
incomes and gains, you increase the capital and by debiting expenses and
losses, you decrease the capital. This is exactly what needs to be done for the
system to stay in balance.
- Accounting
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