Golden Rules of Accounting Made Simple for Beginners

By IIC Lakshya

13 Nov 2025

ACCA

Golden Rules of Accounting Made Simple for Beginners

Are you confused about the debit and credit rules of accounting? The golden rules of accounting are significant in defining how financial transactions, statements, and bookkeeping operate. For students, accounting professionals, and business owners, these golden rules act as the guiding principles of accounting.

Define Accounting

Accounting can be defined as a process that helps monitor and track all monetary transactions, coming in and going out. It helps in making informed decisions and understanding the financial health of individuals and businesses. To learn more, you can read the merits and demerits of accounting.

Golden Rules of Accounting

With the increasing need for financial accountability, all economic entities must have records and statements clearly reflecting all financial information related to their business. Three golden rules of accounting help financial advisors understand how businesses and organizations operate with sustainable finances.

Rule 1: Debit the Receiver, Credit the Giver

The first golden rule of accounting is to treat a company's capital as a liability. Henceforth, there is a credit balance. Whenever the profitable revenue, gains, and income are credited, the capital keeps increasing. With the implementation of this rule, the scope of financial management increases. Similarly, when there are emergency expenses and the business faces losses, it gets debited from the capital.

Type of Accounts

This rule applies to personal accounts. Identified as a general ledger, a personal account is related to associations, individuals, and companies. This account is about reflecting all transactions effectively. While defining accounting as a practice, the journal vs ledger plays a significant role in defining the type of accounts. There are three different types of personal accounts as follows:

Artificial personal account
Natural personal account
Representative personal account

Example

When a company takes a loan from a private company called Iagon, the account of the business is debited. While the Iagon account is credited as they are giving the money.

Rule 2: Debit what Comes In, Credit What Goes Out

This is the second golden rule in accounting, where the account has a default debiting balance. Whatever comes in is debited, thus it adds up to the existing account balance. The account is related to tangible assets like furniture, land, buildings, and machinery.

Additionally, there are also other assets like copyrights, patents, and goodwill which is related to this account. Hence, if a tangible asset is leaving the company, they must credit the account balance. All of these transactions are recorded in a ledger in accounting.

Type of Accounts

This rule applies to real accounts. This type of account is mostly about reflecting transactions that are related to the assets and liabilities of an organization. There are also tangible and intangible assets considered for this type of account. Furthermore, this account will move forward in the next year, thus acting as the balance sheet for the company.

Example

When a company buys a share, the share account is debited. While the cash account is credited.

Rule 3: Debit all Expenses and Losses, Credit all Incomes and Gains

For the second golden rule of accounting, an individual makes a payment to an artificial, natural, or business entity in exchange for a product or service. This becomes an inflow of money. When the money is debited from the account, the company or individual receives the payment. It is then credited to their account.

Type of Accounts

This rule applies to nominal accounts. It is a general ledger account that contains all temporary transactions of a company, such as incomes, expenses, profits, and losses from a certain period. You will find all the transactions of the business for one fiscal year in this account, and every year it resets next year.

Example

In a business, when a payment needs to be made for renting their office space, it is debited from the rent account. When the business gets payment for its services offered to a specific client, it is also added to this account.

Benefits of Accounting Rules

There are several benefits of accounting rules. It helps organizations, their systematic account management, along with earning financial accounting, stability, and growth. The valuation of a business can be monitored with the implementation of accounting rules. In recent times, accounting has evolved, turning from ledgers to the cloud, keeping track of transactions through online resources. Below are some of the advantages of accounting rules:

The rules ensure that all financial transactions and statements are effectively recorded and maintained.
Businesses can use these records to compare their annual performances with other organizations. It also helps companies develop strategies accordingly.
The valuation of a company can be calculated with the implementation of the golden rules of accounting, furthermore, helping companies to get more investments and funding.
With these rules, the records can be used as evidence in legal cases or lawsuits where they might produce financial data in a systematic way.
There are several tax-related matters in a company; hence, with these rules of accounting, companies can effectively maintain their tax payments, bookkeeping, and other business financial responsibilities so that they don’t face any huge penalties.

Significance of Accounting Rules

In conclusion, the golden rule of accounting is quite significant for organizations. Even for individuals working in firms and companies, these rules will help in establishing all accounting practices appropriately. Additionally, a business has several operations and functions to perform, and now we know how these accounting rules benefit money management.

Frequently Asked Questions on the Golden Rules of Accounting

What is a journal entry in accounting?

In accounting, journal entry is the first step towards recording a financial transaction in a business. A book is maintained which consists of all these transactions taking into account how the business accounts has been affected, to what extent and whether they are credited or debited.

What is the concept of tally?

Tally as a concept, is an accounting system; in recent times it has been embedded in a softwar,e accordingly functioning quicker. The accounting software system is used for financial recording, management and analysis of the financial transactions of a business.

What is the difference between debit & credit?

The concept of debit and credit are quite different in accounting and are part of the same process. A debit in a transaction increases the expenses or the assets of a business or an individual recorded on the left side of the account statement. However, when credit happens, it refers to an increase in revenue, equity, or liabilities. It is recorded on the right side of the account statement.

What is GAAP in accounting?

The Generally Accepted Accounting Principles or GAAP in Accounting is a combination of guidelines, standards and rules that are followed in a country when preparing financial reports and statements. These reports ensure comparability, clarity, and consistency.

What are the five types of financial statements?

The five types of financial statements that accounting professionals must be aware of are: Balance sheet, cash flow statement, income statement, notes to financial statements, and balance sheet.