3 golden rules of accounting pdf

A balance sheet helps to understand the financial position of the business. The cash flow statement helps keep track of cash generated and is used by investors to assess a business's financial health.

Maintenance of business records - The maintenance of business records is critical to the success of a business. The practice of accounting will make sure that all your business transactions are recorded in a safe place in the correct order and, more importantly, in a systematic way. Preparation of financial statements - If the golden rules of accounting are applied, then the financial transactions will be recorded appropriately.

Financial statements like profit and loss account, trading account, balance sheets, can all be prepared quickly if the accounting is correctly done. Comparison of financial results - Accounting done by following the golden rules will make it easy to compare one year's financial results against another year.

Analysis of year-on-year financial results becomes easier and trustworthy. Corporate Decision making - An accounting process based on the three golden accounting rules makes the financial results trustworthy and valuable in senior management and leadership's decision-making process. Evidence in Legal matters - Business matters need to be recorded systematically and filed away in an organised fashion for quick reference in legal issues.

Regulatory compliance - For businesses, accounting is of paramount importance helping compliance with regulatory authorities. Without the basic foundation laid down by the three golden accounting rules, it would be difficult to achieve regulatory compliance. Helps in Taxation matters - Due to incorrect accounting practices, the shortfall in taxes could attract heavy penalties from government authorities, negatively impacting image and brand value.

Valuation of business - A robust accounting process helps in proper business valuation, helping to get more investment and expand the business. Budgeting and Future Projections - A good budget based on proper accounting practices can be a strong foundation for any business to be scaled up. Future projections are more accurate with a robust accounting practice in place.

Who requires accounting? The specified books, as per rule 6F of the Income Tax Act, are Cash Book - This book keeps a record of day-to-day cash receipts and payments, showing cash balance at the end of the day or month.

Journal - It is a log of day-to-day transactions where total credits equal total debits following the double-entry accounting system and using the golden rules for accounting. Each debit will have a corresponding credit and vice versa. Ledger - A ledger is a superset of the journal listing details of all accounts and can be used to prepare various financial statements.

Photocopied bills or receipts which are more than Rs. Original bills of expenses incurred by the business worth more than Rs. Personal Account A personal account is a general ledger account.

Download The App. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up. Download Free PDF. Golden Rules of accounting. Niloy Saha. A short summary of this paper. What do you mean by golden rule of accounting? What is the difference between double entry system and single-entry system in accounting?

This is exactly what needs to be done for the system to stay in balance. The golden rules of accounting allow anyone to be a bookkeeper. They only need to understand the types of accounts and then diligently apply the rules. View All Articles. Similar Articles Under - Financial Accounting. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link s to ManagementStudyGuide.

Here in this transaction, we have two accounts i. As we are talking about real accounts thus we will see whether the Cash account will be debited or credited. It is, Cash received from Peter. Here Cash is coming into the business, therefore the Cash account will be debited , considering the rule debit what comes in and Cash is coming into the business.

I hope you got it. Credit what goes out: Credit what goes out means crediting the assets which are going out from the business. It could be an asset such as cash, machinery, furniture, etc. Machinery sold to Peter. So, what we are studying now, we are studying the Golden rules of Accounting in the case of a Real account. So, we will have to see whether the Machinery account will be debited or credited.

Therefore, the 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. A nominal account is an account that is related to all expenses, losses, income, gains, etc.

Here are just a few examples of the 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 represents expenses, losses, income, gains, etc. Debit all expenses and losses: It means debiting all expenses and losses incurred by the business. Salary paid in Cash.

In this transaction, we have two accounts i. The salary account is a nominal account because the salary is an expense as I have mentioned before and the Cash account is a Real account as Cash is an asset.

Now, as we are talking about the Nominal account , we will see whether the Salary account which is a nominal account will be debited or credited.

Here, in this transaction, the salary account will be debited on the basis of the debit rule for all expenses and losses and the salary paid is an expense.