Accounting rules are statements that establishes guidance on how to record transactions. As per accounting rules all the accounting transactions should be recorded in the books of entity using double entry accounting method. Double entry accounting method means for each transaction two (or more) accounts are involved, one account shall be debited and the other account shall be credited with the same amount.
For example: If a person purchases an asset on credit for Rs. 10,000, then the accounting shall be done by crediting cash and debiting asset account simultaneously with an amount of Rs. 10,000.
Benefits of Accounting Rules:
Accounting rules works as a base for any accounting framework. Before applying accounting principles a person is required to know the basic accounting rules that in a transaction which account should be debited and which account should be credited.
Accounting rules are used uniformly by all entities and thus using it results in consistent and comparable financial reports.
The Three Golden Rules of Accounting – Real, Personal and Nominal Accounts
Traditional Approach consists of rules popularly known as the Three Golden Rules of Accounting. These rules are applicable irrespective on all categories of the transaction. These three most talked about and basic Golden rules of accounting are to make debit and credit in accounting ledger by categorising each and every transaction or entry into either
Real Accounts is a set of tangible aspects of business like furniture, cash, etc.
If the item that belongs to the real account is coming into the business then while making the accounting entries it should be written on the Debit side. If the item of real account is going out of the business then while making the accounting entries it should be written on the Credit side.
The accounting rule of real account goes like:- “Debit what comes in, credit what goes out”
If the person/ group of persons/ legal body is receiving something from the business then – Debit the receiver If the person/ group of persons/ legal body is paying something to the business – Credit the payer or giver
The accounting rule of personal account goes like :- “Debit the receiver, Credit the giver”
Nominal Accounts represents all the Expenses, Loses, Income and gains incurred while doing business.Some common e.g. are,
4)Profit on Sale of Machines, etc.
If it’s an expense or loss for the business – Debit
If it’s an income or gain for the business – credit
The accounting rule of nominal account goes like :- “Debit all expenses and losses, credit all incomes and gains”