Whether you’re into small business or large business, accounting is something you can’t take your eyes off it. Accounting is everywhere in every type or size of business. Keeping an accurate and precise record of financial transactions is the best way to maintain the overall cash flow of the business. Every renowned accounting firm you will see keeps an accurate record of business finance. But you know one thing? Every process runs by set of standard rules, which applies in accounting as well. Everyone into finance industry must follow these accounting rules. So, what are these golden rules of accounting?
Hold your breath guys. You’re going to read about the GOLDEN rules of accounting below. Keep the pace of reading going on till the end.
Golden rules of accounting at your glance
Guys, there are 3 types of golden rule that come into accounting, which include:
1. Debit the receiver and credit the giver
This is the first golden rule and this rule applies for personal accounts. How does it work? Let’s understand this here. When a person gives something to the company, it becomes and inflow for the company. Therefore, the person must credit in the books of accounts. And receiver has to be debited.
So, this is quite simple rule. When you receive something, just debit the amount and give soothing credit the amount.
2. Debit what comes in and credit what goes out
This rule is for real account. What is real account, you ask? A real account is all about having physical assets like machinery, land, building, and so on. So, real account has debt balance by default. That means, when you debit what comes in, you’re adding to the existing account balance. Same way, when you credit what goes out; you reduce the account balance when the tangible assets go out of the company.
3. Debit all expense and losses, credit all incomes and gains
This is the last golden rule of accounting. This rule is used when the account in question is a nominal account. Here the capital of the company is a liability. That’s why it has default credit balance. So when you credit all gains and income, you actually increase the capital and by debiting the expense and loss, you decrease the capital. No doubt, this is what requires for the system to stay in balance.
So, these were the 3 golden rules of accounting that you just read. Let me tell you that these golden rules of accounting allow you to be a bookkeeper. All you need to do is just understand the type of accounting and apply those rules in them.
What benefits you can seek from accounting rules?
There is no doubt that rules are important for any company to run to thrive in the competitive industry right. So golden accounting rules basically help businesses interpret the results consistently and accurately. With accounting rules, you can easily facilitate the comparison of financial report and finally provide users with great financial information about the company and user of bookkeeping.
Moreover, accounting rule helps the company survive and thrive in the business in the long run. In fact, accountants providing virtual accounting services in Honolulu to clients also follow the golden rules of accounting so that they don’t face any difficulty in data management in the future.in case, you don’t understand the accounting rules, you can always hire an accounting firm like Kayabooks to help you in this regard.
The bottom line
Now that you have come to the end of this article, let me tell you that these three golden rules of accounting lay down the foundation of the company. As a businessman or an accountant, you can keep your accounts up to date and function accurately. I believe you have read all the rules in details and type of accounting they work in. I hope you found this article helpful and informative.
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