Golden Rules of Accounting (Traditional best)

N B. Traditional approach( British approach) is easier than Modern approach( equation approach/ US approach)

Personal accounts : Accounts recording transaction with persons or firms are known as Personal accounts. Accounts recording transaction which do not effect particular person, but effects business in general are known as Impersonal A/c’s Impersonal A/c’s may be either Real Accounts or Nominal Accounts

2. Real Accounts are those accounts of property or possession. Example: Goods Accounts, Cash Account, Bank Account, Office Furniture Accounts.

3. Nominal or Fictitious Accounts Records Expenses, gains & losses. Examples:Rent A/c Salaries A/c Advertising A/c Interest Recd A/c Discount A/c Commission Recd A/c Wages A/c

Three Golden Rules of Accounting (Traditional)

Personal accounts: 
debit: receiver of benefit 
credit: the giver of the benefit 

Real accounts: 
Debit : What comes in 
Credit: What goes out 

Nominal Accounts: 
Debit: all expenses and losses 
Credit: all incomes and gains

• Purchased furniture for 10,000 in cash

Accounts Involved	Debit/Credit	Rule Applied
Furniture A/C	10,000	Furniture is real a/c so Dr. what comes in
To Cash A/C	10,000	Cash is a real a/c so Cr. what goes out

• Paid 15,000 cash to Unreal Pvt Ltd.

Accounts Involved	Debit/Credit	Rule Applied
Unreal Pvt Ltd. A/C	15,000	Unreal Pvt Ltd. is a personal a/c so Dr.the receiver
To Cash A/C	15,000	Cash is a real a/c so Cr. what goes out

•  Paid 18,000 from the bank as rent.

Accounts Involved	Debit/Credit	Rule Applied
Rent A/C	18,000	Rent is a nominal a/c so Dr. theexpenses
To Bank A/C	18,000	Bank is a personal a/c so Cr the giver

The application of the above rules is only possible if you can correctly determine the kind of account you are dealing with.

Modern Approach of Golden Rule:

Accounts are 6 types in Modern approach. It is true that some people find the modern approach easier to apply than the traditional golden rules of accounting.

You should try to use the modern approach at least once to find out which one is easier to understand and apply. It is true that some people find the modern approach easier to apply than the traditional golden rules of accounting.

Modern Rules of Accounting

• Received cash 3000 as rent from Unreal Pvt Ltd.

Accounts Involved	Debit/Credit	Modern Rule Applied
Cash A/C	3000	Cash is an asset a/c so Dr. increase
To Rent A/C	3000	Rent is revenue a/c so Cr. decrease