What is golden rule of accounting?

Question

Accepted Answer

The golden rule of accounting states that debit what comes in and credit what goes out.

Debit what comes in and credit what goes out
Assets = Liabilities + Equity
Helps maintain the accounting equation balance
Used to ensure accurate recording of financial transactions

Accepted Answer

The Golden Rules of Accounting are fundamental principles that guide the process of recording transactions in accounting. These rules are based on the three types of accounts: Personal Account, Real Account, and Nominal Account. Here's a breakdown:

1. Personal Account

Rule: Debit the receiver, Credit the giver.

Explanation:
If a person or entity receives something, their account is debited. If they give something, their account is credited.
Example:

Payment made to a supplier:
Debit: Supplier's Account
Credit: Cash/Bank Account

2. Real Account

Rule: Debit what comes in, Credit what goes out.

Explanation:
Real accounts relate to tangible and intangible assets. When an asset is acquired, it is debited; when an asset is given out or used, it is credited.
Example:

Buying machinery:
Debit: Machinery Account
Credit: Cash Account

3. Nominal Account

Rule: Debit all expenses and losses, Credit all incomes and gains.

Explanation:
Nominal accounts deal with expenses, incomes, losses, and gains. Expenses and losses are debited, while incomes and gains are credited.
Example:

Receiving rent:
Debit: Cash Account
Credit: Rent Income Account

These rules form the foundation of double-entry bookkeeping, ensuring that every transaction is recorded accurately in the books.

What is golden rule of accounting?

Top Genpact Process Associate interview questions & answers

Popular interview questions of Process Associate

Top HR questions asked in Genpact Process Associate