The golden rules of bookkeeping are a set of fundamental principles that ensure the accuracy and reliability of financial records. They include:
- Debit the Receiver and Credit the Giver: This rule states that when money is received, the receiver’s account is debited and when money is given, the giver’s account is credited. This helps to maintain the balance of the accounts.
- Personal Accounts are Debited when Expense and Losses Occur and Credited when Incomes and Gains are received: This rule ensures that expenses and losses are recorded correctly in the relevant accounts and that incomes and gains are recorded in the appropriate accounts.
- Real Accounts are Debited when Assets Decrease and Credited when Assets Increase: This rule applies to accounts that represent physical assets such as cash, inventory, and property. The accounts are debited when assets decrease and credited when assets increase.
- Nominal Accounts are Debited when Expenses and Losses Occur and Credited when Incomes and Gains are received: This rule applies to accounts that represent expenses, losses, incomes, and gains, such as salaries and rent. The accounts are debited when expenses and losses occur and credited when incomes and gains are received.
- The Double-Entry System: This rule states that every financial transaction must have at least two entries, one as a debit and one as a credit. This ensures that the financial records are accurate and that the accounts balance.
- The Trial Balance: This rule requires that the total of all debit entries must equal the total of all credit entries. If the trial balance does not balance, this indicates an error in the financial records and must be corrected.
Adhering to these golden rules of bookkeeping helps to ensure the accuracy and reliability of financial records, which is essential for financial reporting, tax compliance, and informed business decision-making.