Golden Rules of Accounting with Examples
The three golden rules of accounting tell you which account to debit and which to credit in any transaction. They are: for a personal account, debit the receiver and credit the giver; for a real account, debit what comes in and credit what goes out; and for a nominal account, debit all expenses and losses, credit all incomes and gains. Once you can spot which type of account you're dealing with, the entry writes itself.
First, the three types of accounts
Every account in accounting is one of three types:
- Personal account — a person, firm or organisation. Examples: a customer, a supplier, a bank, Capital.
- Real account — an asset, something you own. Examples: Cash, Furniture, Machinery, Building.
- Nominal account — expenses, losses, incomes and gains. Examples: Rent, Salary, Sales, Interest received.
The golden rule you apply depends on which type the account is.
The three golden rules
| Account type | Rule |
|---|---|
| Personal | Debit the receiver, credit the giver |
| Real | Debit what comes in, credit what goes out |
| Nominal | Debit expenses and losses, credit incomes and gains |
Rule 1: Personal account
Debit the receiver, credit the giver.
Example: You pay ₹5,000 to your supplier, Metro Supplies.
- Metro Supplies is a personal account (a firm). They receive the money, so debit them.
- Cash is a real account that goes out, so credit it.
Entry: Metro Supplies A/c Dr ₹5,000 / To Cash A/c ₹5,000.
Rule 2: Real account
Debit what comes in, credit what goes out.
Example: You buy furniture for ₹15,000 in cash.
- Furniture comes in (a real account), so debit it.
- Cash goes out (a real account), so credit it.
Entry: Furniture A/c Dr ₹15,000 / To Cash A/c ₹15,000.
Rule 3: Nominal account
Debit expenses and losses, credit incomes and gains.
Example: You pay ₹3,000 rent in cash.
- Rent is an expense (nominal), so debit it.
- Cash goes out (real), so credit it.
Entry: Rent A/c Dr ₹3,000 / To Cash A/c ₹3,000.
Example of income: You receive ₹500 interest in your bank.
- Interest received is an income (nominal), so credit it.
- Bank comes in (real, sort of a personal/real), so debit it.
Entry: Bank A/c Dr ₹500 / To Interest A/c ₹500.
Worked example (a full day)
- Started business with ₹1,00,000 cash. - Cash comes in (real) → debit. Capital is the giver (personal) → credit. - Cash A/c Dr 1,00,000 / To Capital A/c 1,00,000
- Bought goods for ₹20,000 cash. - Purchase A/c Dr 20,000 / To Cash A/c 20,000
- Paid ₹2,000 salary. - Salary A/c Dr 2,000 / To Cash A/c 2,000
Each entry balances: total debit equals total credit.
The modern approach (a note)
Newer accounting teaching sometimes uses a single rule based on the accounting equation (Assets = Liabilities + Capital), classifying accounts as assets, liabilities, capital, income or expenses. The golden rules and the modern approach give the same answer; the golden rules are just an easier starting point for beginners.
Pro tips
- Always identify the account type first. The rest follows automatically.
- In every entry, total debits must equal total credits. If they don't, something's wrong.
- Cash and Bank going out are credited; coming in, debited. This trips up most beginners.
Common mistakes
- Misclassifying the account. Calling Rent a real account instead of nominal leads to the wrong entry.
- Reversing debit and credit. Re-read the rule for that account type before writing.
- Forgetting the two sides. Every transaction affects at least two accounts, one debit and one credit.
Key takeaways
- Personal: debit the receiver, credit the giver.
- Real: debit what comes in, credit what goes out.
- Nominal: debit expenses/losses, credit incomes/gains.
- Identify the account type first; the entry follows.
Practice task
Write the journal entries for: (1) paid ₹4,000 electricity in cash, (2) received ₹10,000 from a customer, (3) bought a computer for ₹25,000 by cash. Name the account type behind each debit and credit.
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Frequently Asked Questions
What are the three golden rules of accounting?
Personal account: debit the receiver, credit the giver. Real account: debit what comes in, credit what goes out. Nominal account: debit expenses and losses, credit incomes and gains.
What is a personal, real and nominal account?
A personal account is a person or firm (a customer, a bank). A real account is an asset (cash, furniture). A nominal account is an expense, loss, income or gain (rent, sales).
How do I know whether to debit or credit?
Identify the account type, then apply its golden rule. For example, rent is nominal and an expense, so it's debited.
Do debits and credits always have to be equal?
Yes. In every transaction, total debits must equal total credits. This is the basis of double-entry accounting.
Are the golden rules still used today?
Yes, they're the standard way beginners learn journal entries. The modern equation-based approach gives the same results and builds on the same logic.