What is Accounting | Golden Rules Of Accounting

Definition of Accounting

Accounting is a systematic recording day to day business transaction is called as accounting.

Accounting is the process of identifying, recording, classifying and reporting information on financial transactions in a systematic manner for the purpose of providing financial information for decision making.

Types of Accounts

There are basically three types of Accounts maintained for transactions

1. Personal Account
2. Real Account
3. Nominal Account

1. Personal Account: Any individual person or any firms or any company or a bank is considered in a Personal account.

For example:-

Rajesh Singh
Muna Enterprise
Wipro Pvt Ltd
PNB Bank
Capital etc.

2. Real Account: Account of any physical things. The cash account or goods account are examples of Real account.

For example:-

Cash
Land
Building
Furniture
Computer etc.

3. Nominal Account: Account of any invisible things that means that things are in terms of cash are examples of Nominal account.

For example:-

Discount
Commission
Salary
wages
Freight etc.

Golden Rules Of Accounting

1. Personal Account:

Any individual person or any firms or any company or a bank is considered in a Personal account.

Debit the receiver, credit the giver: This rule states that when a business receives something, such as cash or goods, it is recorded as a debit in the accounting system. When a business gives something, such as cash or goods, it is recorded as a credit in the accounting system.

2. Real Account:

Account of any physical things. The cash account or goods account are examples of Real account.

Debit what comes in, credit what goes out: This rule states that when there is an inflow of assets or an increase in liabilities, it is recorded as a debit in the accounting system. When there is an outflow of assets or a decrease in liabilities, it is recorded as a credit in the accounting system.

3. Nominal Account:

Account of any invisible things that means that things are in terms of cash are examples of Nominal account.

Debit expenses and losses, credit incomes and gains: This rule states that expenses and losses are recorded as debits in the accounting system, while incomes and gains are recorded as credits.

By following these golden rules of accounting, accountants can ensure that financial transactions are recorded accurately and consistently, which is essential for producing reliable financial statements and making informed business decisions.

Golden Rules of Accounting