Meaning of accounting – Accounting is a process in which the owner keeps the record of his business transactions in money form so that the profit or loss of business can be properly ascertained at the end of the year. Accounting is concerned for providing the important information to external users such as investors, creditors, debtors, banks, Government etc. Hence, the accounting is an important technique of maintaining business transactions properly so that the profit or loss of the business can be ascertained properly the end of the year.
3 Golden Rules Of Accounting
( 1 ) Debit the receiver and Credit the giver – This is the first golden rule of accounting system and this rule is followed in case of personal account. It means that all the transaction which comes under personal account criteria follow this rule.
Explanation of Debit the receiver and Credit the giver – According to the rule personal account of the person to whom we give some money or goods is debited. For example, if we give Rupees 50,000 to Ramesh, the entry will be –
| Date | Account Name | Debit | Credit |
| 08/02/2019 | Cash A/c Dr | 50,000 | |
| To Naman ( Cash received from Naman ) | 50,000 |
( 2 ) Debit what comes in and Credit what goes out – This is the Second golden rule of accounting system and this rule is followed in case of Real account. It means that all the transaction which comes under Real account criteria follow this rule.
Explanation of Debit what comes in and Credit what goes out – According to this rule the account of cash or other property which is received by the business firm is debited and in the same way, the account of the cash and other property which goes out of the business is credited. For example, if machinery is bought for 10,00,000 Rupees , the entry will be –
| Date | Name of account | Debit | Credit |
| 02/02/2019 | Machinery A/c Dr | 10,00,000 | |
| To Cash A/c ( Machinery purchased in cash ) | 10,00,000 |
( 3 ) Debit all expenses and Credit all the incomes – This is the Third and last golden rule of accounting system and this rule is followed in case of Nominal account. It means that all the transaction which comes under Nominal account criteria follow this rule.
Explanation of Debit all expenses – As per this rule, all the expenses such as Salary is debited and the entry will be –
| Date | Name of account | Debit | Credit |
| 02/02/2019 | Salary A\c | 10,000 | |
| To Cash A/c ( Salary paid ) | 10,000 |
Explanation of Credit all incomes – According to this rule, all the income such as commission is credited and the entry will be –
| Date | Name of account | Debit | Credit |
| 02/02/2019 | Cash A/c | 7,000 | |
| To Commission A/c ( Commission received ) | 7,000 |
Types of accounts
On the basis of the rules discussed in the chapter on double entry system there are three types of accounts. All the journal entry based on these three account.
( A ) Personal Account – Personal account is the account which records all the transactions related to a person or in the name of person . Example : Ram’s Account , Shayna’s Account etc.
( B ) Real Account – Also known as a permanent account. Includes the balance sheet accounts (assets, liabilities, and owner’s or stockholders’ equity accounts) but excludes the owner’s drawing account, which is a temporary account.
( C ) Nominal Account – Nominal account is the account which records all the transactions related to losses , expenses,gains,incomes .
