3 Golden Rules of Accountancy

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3 GOLDEN RULES OF ACCOUNTANCY

(1) Debit What comes in & credit what goes out [Real Account] Real Accounts – All tangible assets like cash, car, furniture and intangible assets like goodwill, patents

(2) Debit the Receiver & Credit the giver [Personal Account] Personal Accounts – Jose, cyndie or any other person or any company’s account in business

(3) Debit all the Expenses and losses & Credit all the Incomes and gains. [Nominal Account] Nominal Accounts – All Income, Expenses, Profit, Losses Accounts

Note:- (1) Debit if there is a decrease in liability and credit if there is an increase in Liability
(2) Debit if there is an increase in assets and credit if there is a decrease in Assets

Examples:-

(1) Capital Brought in Business $50000 (cash)

Cash 50000
Equity/capital 50000

[We debited cash because cash is a Real Account and it is coming in the business (Debit what comes in), Capital is a Personal account and the owner is giving the cash(credit the giver) to business that’s why we’ll credit Capital or Equity ]

(2) Truck Purchased for $10000 cash

Truck 10000
Cash 10000

[we debited Truck because Truck is a Real Account and it is coming in (debit what comes in) the business, we credited cash because it is also a Real Account but it is going out of Business (credit what goes out)]

(3) Borrowed $7000 cash from bank

Cash 7000
Notes payable 7000

[We debited Cash because cash is a Real Account and it is coming in the business (debit what comes in), we credited notes payable because Notes Payable is Personal Account (coz it is associated with a person or any personal account like a company’s name or any employee’s name or bank’s name) and when we are giving notes to bank in return of the cash received from bank.(Credit the giver)] and notes payable is an increasing liability in this case so we can recheck it with Note (1).

(4) Purchased Computer worth $1000 with down payment of $500 and $500 loan

Computer 1000
Cash 500
Notes Payable 500

[We debited Computer because computer is a Real Account and it is coming in the business (debit what comes in), we credited Cash because it is a Real Account and it is going out of business (credit what goes out), We credited Notes Payable because Notes Payable is Personal Account (coz it is associated with a person or any personal account like a company’s name or any employee’s name) and when we are giving notes to bank in return of the cash received from bank.(Credit the giver)] and notes payable is an increasing liability in this case so we can recheck it with Note (1).

(5) Lend $5000 Cash to an employee for notes Receivable

Notes Receivable 5000
Cash 5000

[We debited Notes Receivable because Notes Receivable is Personal Account (coz it is associated with a person or any personal account like a company’s name or any employee’s name) and when we are receiving notes from employee in return of the cash paid to him.(Debit the Receiver)] and notes Receivable is an increasing Asset in this case so we can recheck it with Note (2). We credited cash coz it is a Real Account and it is going out of business (Credit what goes out).

(6) Purchased 1000 units of Inventory of $1 each

Inventory 1000
Cash 1000

[We debited Inventory because Inventory is a Real Account and it is coming in the business (Debit what comes in), we Credited Cash because Cash is also a Real Account and it is going out of our business (Credit what goes out)]

(7) Pay $1500 in Salaries

Salaries Expense 1500
Cash 1500

[We debited Salaries Expenses because Salaries is a Nominal Account and It is an expense (Debit all the expenses and losses), We Credited Cash because Cash is a Real Account and it is going out of our business (Credit what goes out)]

(8) Sell 500 units of Inventory for $5 each which we...
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