What Are the Three Golden Rules of Accounting?
Having accurate financial information is critical for every entrepreneur to make good business decisions. The financial information must be accurate and present a true picture of the business to make correct decisions. Proper accounting for every transaction is critical to ensure that the financial information is accurate. The three golden rules of accounting have been devised to help accountants accurately account for every financial transaction.
The golden rules of accounting form the basis of principles used by accountants to record financial statements. The accounting golden rules are also referred to as the rules of debit and credit or traditional accounting rules. It is important to note that each of these rules applies to three different account types in accounting. Businesses can consult with accounting firms in Dubai to know further about the golden rules of accounting.
This blog will help you get to know the three accounting golden rules that simplify the complicated task of recording financial transactions. Let’s dive deeper:
What are the golden rules of accounting?
Golden Rules of Accounting comprise a set of regulations for recording day-to-day transactions in the double-entry accounting system. Here, each transaction affects two sides (debit and credit sides) equally and oppositely. These rules help organizations maintain uniformity and consistency when it comes to recording, storing, and referring to transactional data.
The golden rules of accounting apply to three types of accounts: real accounts, personal accounts, and nominal accounts. A real account is a general ledger account that has data related to assets and liability. Real accounts do not close at the end of the year and are carried forward. Personal accounts are a personal depository for individuals, companies, and other associations. A nominal account is related to recording all income, gains, losses, and expenses.
The first rule: Debit what comes in and credit what goes out
This golden rule of accounting applies to real accounts where tangible assets such as machinery, buildings, land, furniture, etc., are taken into account. As per this rule, when a business acquires something such as an asset then the account of the business needs to be debited. Similarly, when a tangible asset leaves the business, the account will be credited. Consult with accounting & bookkeeping firms in Dubai for further information.
The second rule: Credit the giver and Debit the Receiver
The second golden rule of accounting pertains to personal accounts. When a natural or legal person makes a donation to a company, it becomes an inflow. As per the second golden rule of accounting, when the business receives something, then the account must be debited. On the other hand, when the business gives something then the account must be credited. Accounting companies iN Dubai can help you out with applying the second golden rule of accounting.
Third Rule: Debit all expenses and losses, credit all incomes and gains
This golden rule of accounting applies to nominal accounts. Nominal accounts may include expense, gain, loss, and revenue accounts. As per this rule, a company’s capital is its liability. In line with this, the company has a credit balance. Crediting all the income and gains will increase the capital. On the other hand, capital reduces when expenses and losses are debited. Businesses can seek the advice of accounting firms in Dubai for more guidance on the third golden rule of accounting.
Modern Rules of Accounting
The traditional rules of accounting are based on the double entry system of accounting and they are based on three types of accounts. However, the modern version of accounting rules comprises six types of accounts. This classification effectively makes the transactions split into these categories, affecting the debit and credit sides. These accounts include asset, liability, revenue, expense, capital, and withdrawal. Accounting firms in Dubai can guide you further on the modern rule of accounting.
How can the Best Accounting & Bookkeeping Firms in Dubai Help You?
The golden rules of accounting can guide businesses on how to record their transactions. To ensure your transactions are recorded accurately, it is advisable to outsource your accounting requirements to the best accounting firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA provides reliable accounting services in Dubai that can create a big difference in your business.
We have over 20 years of experience and expertise in the field of accounting & auditing. JCA can add value to your business as we have served companies of all sizes engaged in different industries. Apart from providing the best accounting & bookkeeping services in Dubai, JCA helps companies meet key compliance requirements related to the UAE corporate tax, VAT, ESR), AML and UBO. Hire us and elevate your company to greater heights.