The Three Golden Rules of Accounting

Before applying the rules, you must categorize the transaction into one of three types of accounts:

1. Personal Accounts: Accounts related to individuals, companies, or banks (e.g., Rahul's A/C, Tata Motors A/C, HDFC Bank A/C).
2. Real Accounts: Accounts related to physical assets or properties (e.g., Cash A/C, Machinery A/C, Furniture A/C).
3. Nominal Accounts: Accounts related to invisible concepts like expenses, losses, incomes, and gains (e.g., Rent A/C, Salary A/C, Sales A/C).

Debit the Receiver, Credit the Giver.

• Logic: If a person receives something from your business, you debit their account. If a person gives something to your business, you credit their account.
• Example: Paid ₹5,000 to Rahul. (Rahul is the receiver, so Debit Rahul's A/C).

Debit what comes in, Credit what goes out.

• Logic: This is the simplest rule. If a physical asset comes into the business, debit it. If it leaves the business, credit it.
• Example: Bought furniture for ₹10,000 cash. (Furniture comes in, so Debit Furniture A/C. Cash goes out, so Credit Cash A/C).

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

• Logic: Every time the business spends money to run operations (expense), it is debited. Every time the business earns a profit or revenue (income), it is credited.
• Example: Received ₹2,000 as commission. (Commission is an income, so Credit Commission A/C. Cash comes in, so Debit Cash A/C).