What are the 3 golden rules of accounting in English?

The Golden Rules of Accounting

In the realm of financial record-keeping, adherence to a set of fundamental principles is paramount. These guiding principles, known as the Golden Rules of Accounting, serve as the cornerstone upon which accurate and reliable financial statements are built.

Golden Rule 1: Debit the Receiver and Credit the Giver

This rule governs the recording of transactions involving the exchange of assets and resources. When an entity acquires an asset, the corresponding debit entry is made to the asset account, while a credit entry is made to the account of the party providing the resource. Conversely, when an asset is transferred or sold, a credit entry is made to the asset account, and a debit entry is recorded in the account of the receiving party.

Golden Rule 2: Debit Increases and Credit Decreases

This rule applies to the recording of changes in account balances. In the case of asset accounts, a debit entry is made to increase the balance, indicating an inflow of assets. Conversely, a credit entry is recorded to decrease the balance, representing an outflow of assets. For liability and equity accounts, the rule is reversed: debits decrease balances, while credits increase balances.

Golden Rule 3: Debit Expenses and Credit Income

This rule guides the recording of revenue and expenses, which directly impact the income statement. When an entity incurs an expense, a debit entry is made to the expense account, thereby reducing the entity’s net income. Conversely, when an entity earns income, a credit entry is made to the income account, increasing the entity’s net income.

Significance of the Golden Rules

The Golden Rules of Accounting provide a consistent framework for financial reporting. By adhering to these rules, accountants ensure the accuracy and integrity of financial statements, enabling users to make informed decisions based on reliable financial information.

The Golden Rules help organizations track and manage their financial transactions effectively, facilitating sound financial planning and decision-making. Moreover, they promote transparency and accountability in financial reporting, enhancing the trust and confidence of stakeholders.

Conclusion

The Golden Rules of Accounting are essential principles that govern the recording and reporting of financial transactions. By embracing these rules, accountants maintain the accuracy, reliability, and consistency of financial statements, providing a solid foundation for informed decision-making and financial well-being.