Explain about types of accounting and its golden rules.

There are 3 types of accounts

Real account − It relates assets and liabilities; it does not include people accounts. They carry forword every year.

Personal account − Connects individuals, firms and associations accounts.

Nominal account − Relates all income, expenses, losses and gains accounts.

Golden rules of accounting

  • Debit the receiver, credit the giver

If a person gives something to a firm, it must be recorded as credit in the books of accounts. It is used as in personal accounts.

  • If anything coming then Debit, if anything goes out then credit.

Real accounts consist of machinery, land and building etc. debit what comes in means it will add to the existing balance similarly, credit what goes means it will be deducted from the existence balance.

  • all expenses and losses are to be debited, all incomes and gains are to be credited.

When a firm get a profit, it will credit all incomes and gains means it will increase firm’s capital. Similarly, by debiting expenses and losses means it will decrease its capital. These are used in nominal accounts.

Type of accountGolden rules
Real account
  • Debit what comes in
  • Credit what goes out
Personal account
  • Debit the receiver
  • Credit the giver
Nominal account
  • Debit the expenses or losses
  • Credit the income or gain

Updated on: 12-Aug-2020

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