Hello guys my name is Lavish Gupta and today
i am going to describe Golden Rules of accounting.For a beginner I know how much Golden Rules
of Accounting matters, so I will try to make it as much easier for you guys as much as
I can. Well understanding these rules is not much difficult task, it just requires someone
who can teach it properly and the mental exercise of one who is understanding it. That means
you. Before starting what are the three golden rules of Accounting, you should know why we
need them. So, why we need Golden rules of Accounting?? Journal Entries cannot be recorded
without some rules. The rules which are used to record a journal entry are called Golden
Rules of Accounting. Therefore we need these Golden rules of Accounting to record journal
entry without which the accounting is incomplete. Before knowing the Golden Rules of Accounting,
you need to know that there are three types of accounts in accounting which are or for
which we will study ahead. So, as i have mentioned that there are three types of Account which
are Personal Account, Real Account, nominal account. In addition to these three accounts
thre are also three golden rules of accounting and you know what each golden rule is associated
with separate account. Thus we have 3 rules for 3 types of accounts or we can say 1 rule
for 1 type of account. Now let’s study about each of these accounts and rules associated
with them. Starting with personal account, personal account is an account which
is related to person, organisation etc. thus any account which represent person, organisation
etc comes under personal account. here are the few examples of personal account. First
is Capital account. Capital represents the owner of the firm and owner is a person,therefore
Capital account comes under personal account. Second is Mahajan and Sons Ltd account. Mahajan
and Sons Ltd Account represent an organisation and any account which represent an organisation
comes under personal account. third is Bank account. Bank is an organisation, thus it
also comes under personal account. Fourth is Ram’s account. Ram is a person and all
accounts which represent a person comes under personal account. so, the fact is any account
which represent person, organisation etc comes under personal account.I hope now you guys
got the meaning of Personal account. So now let;s see what is the Golden Rule of Accounting
in case of personal account. The Golden Rule of Accounting in case of personal Account
is Debit the Receiver, Credit the giver which means debiting the person who receives from
the business and crediting the person who gives into the business. Now let’s study about
these rules in details. Debit the Receiver. it means debiting the person or organisation
who has received something from the business. it could be any person such as owner,creditor,
debtor, dealer, supplier, customer etc. it results in decreasing of firm’s resources.
Let’s study an example to make it more clear. cash paid to Ram. Here in this transaction
we have 2 accounts i.e Cash account and Ram’s account. Cash account
is Real account for which we will study after personal account and Ram’s account is personal
account as Ram is a person.So, as we are talking about personal account, therefore we will
see whether Ram’s account will be debited or Credited. Let’s see the example again,
It is Cash paid to Ram. here, in this transaction ram is receiving cash from the Business, therefore
considering the rule Debit the Receiver, ram’s account will be debited as Ram has received
cash from the Business and the rule is debit the Receiver.
Now let’s move to Credit the giver. It means Crediting the person/organisation which has
given something into the business.It results in increasing of firm’s resources. Lets study
an example to make it more clear. Cash received from Mahajan Ltd.. Here, in this transaction
we have 2 accounts i.e Cash account and Mahajan Limited account./ Cash account is Real account
and Mahajan Limited acount is Personal account as it is an organisation. So, as we are talking
about personal account, we will see whether Mahajan’s Limited account will be debited
or Credited. Let’s see the example again. It is Cash received from Mahajan limited.
So, here mahajan Limited is giving cash into the business, therefore Mahajan Limited account
will be Credited considering the rule Credit the Giver and Mahajan Limited has given cash
into the business.Let’s move to real account before that I have to say you something. I
hope you guys got the golden rules of accounting in case of personal account. If not you can
always ask me in comments. you can also mail me at [email protected] or you can also
contact me at my website which is accountancy.youthsvilla.com. thank you. Okay now lets move to real account.Real
account is an account which represent asset or which is related to assets. If you guys
don’t know what an asset is then let me tell. An asset can be anything of economic value
owned by an Individual or organisation and which can be converted into cash. thus anything
which can be converted into cash can be termed as asset. So, here are the few examples of
Real account i.e Cash account, Stock account, machinery account, Furniture account etc because
all these things such as cash, stock, machinery, furniture etc are assets. So, the fact is
any account which represent assets comes under real account. Now, lets study what is the
golden rule of Accounting in case of Real account. It is Debit what Comes In and credit
what goes out. Debit what comes in means debiting the assets coming into the business as real
account is linked with assets. Now let us study an example of Debit what comes in. Example
is Cash received from Ram. Here in this transaction we have two accounts i.e cash account and
Ram’s account. Cash account is real account as cash is an asset and Ram’s account is personal
account as ram is a person. As we are talking about real account thus we will see whether
Cash account will be debited or Credited. Let’s see the example again. It is Cash received
from Ram. Here Cash is coming into the business, therefore Cash account will be debited, considering
the rule debit what comes in and Cash is coming into the business. Hope you got it. Let’s
move to Credit what goes out. Credit what goes out means crediting the assets which
are going out from the business. It could be any asset such as cash, machinery, furniture
etc.Now let we study an example of Credit what goes out. Machinery sold to Ram. Here
in this transaction we have to accounts i.e Machinery account and Ram’s account. Machinery
account is Real account as Machinery is an asset and Ram’s account is personal account
as Ram is a person. so, what we are studying now, we are studying Golden rules of Accounting
in case of Real account. So, we will have to see whether Machinery account will be Debited
or Credited.Let’s see the example again. it is Machinery sold to Ram. Here machinery is
going out from the business as we have sold it. Therefore, Machinery account will be credited
considering the rule in case of Real account Credit what Goes Out and Machinery is going
out from the business. Now, i hope you guys got the Golden Rules of accounting, both in
case of Personal and Real account. If not, you can always ask me in comments. let’s move
to nominal account. It is an account which is related to all expenses, losses, income,
gains etc. Here are the few examples of Nominal account. Salary account (salary is an expense)
Income received account (income received is an income therefore it comes under nominal
account) , Loss on sale of assets account etc (It is a loss for the company therefore
it comes under nominal account) So, any account which represent expenses, losses ,income,
gains etc comes under nominal account.Let’s study what is the Golden rule of accounting
in case of Nominal account. It is Debit all expenses and Losses and Credit all Income
and Gains. First we will study about debit all expenses and losses. It means debiting
all expenses and losses incurred by the business. Let me study an example of debit all expenses
and losses to make it more clear for you. Salary paid in Cash. In this transaction we
have two accounts i.e salary account and Cash account. salary account is nominal account
because salary is an expense as I have mentioned before and Cash account is Real account as
Cash is an asset. now, as we are talking about Nominal account, we will see whether Salary
account which is a nominal account will be debited or Credited.Here, in this transaction
Salary account will be debited considering the rule debit all expenses and Losses and
salary paid is an expense. let’s move to Credit all Income and Gains. credit all Income and
Gains means Crediting all Income and Gains earned by the business. Let’s see an example
to make it more clear. The example is interest Received from bank. Here in this transaction
we have 2 accounts, i..e Interest Received account and cash account. Interest received
account is Nominal account and Cash account is Real account. Now as we are talking about
Nominal account, we will see whether Interest received account will be debited or credited.
Here, interest received account will be credited considering the rule credit all income and
Gains and Interest received is an income for the Business Organisation. Now, i hope i have
made accounting a little easier for you. i have tried my best to make it easier for you.
Hope you guys like it.I have to say something that i am just a 17 year old guy so pardon
me for my mistakes. Thank you. Also don’t forget to like and subscribe to my channel
for more videos like this. The End. thank you for watching.