Golden Rules of Accounting

Introduction

The Golden Rules of Accounting are the foundation of accounting and bookkeeping. Every transaction recorded in TallyPrime follows these rules.

Before entering vouchers in TallyPrime, students must understand:

• Types of Accounts
• Golden Rules
• Debit and Credit Concepts
• Practical Business Transactions

Once these concepts are clear, voucher entry becomes easy because every entry follows a specific rule.

Why Are Golden Rules Important?

Whenever a business transaction occurs, we must decide:

• Which account is affected?
• Which account should be debited?
• Which account should be credited?

The Golden Rules help answer these questions.

Classification of Accounts

Understanding these three account types is the key to applying Golden Rules.

Rule 1: Personal Account

Meaning

Personal Accounts are accounts of:

• Individuals
• Customers
• Suppliers
• Companies
• Organizations
• Banks

Examples

• Ram Account
• Suresh Account
• SBI Bank Account
• Reliance Industries Account
• ABC Traders Account

Golden Rule of Personal Account

Debit the Receiver

Credit the Giver

Real-Life Example 1

Ram gives ₹10,000 cash to the business as capital.

Analysis

• Ram = Giver
• Business receives cash

Entry

Cash A/c Dr.        10,000
     To Ram A/c          10,000

Rule Applied

Ram is the giver.

Credit the Giver

Ram A/c Cr.

Real-Life Example 2

Paid ₹5,000 to supplier Suresh.

Analysis

Suresh receives money.

Entry

Suresh A/c Dr.      5,000
     To Cash A/c         5,000

Rule Applied

Suresh is the receiver.

Debit the Receiver

Suresh A/c Dr.

Practical TallyPrime Use

When recording:

Paid Rent to Landlord
Paid Supplier
Paid Employee Salary

Personal accounts are frequently involved.

Rule 2: Real Account

Meaning

Real Accounts represent assets and properties.

These accounts do not close at year-end and continue in the balance sheet.

Examples of Real Accounts

Tangible Assets

Assets that can be touched.

• Cash
• Furniture
• Building
• Machinery
• Vehicle
• Computer

Intangible Assets

Assets that cannot be touched.

• Goodwill
• Patent
• Trademark
• Copyright

Golden Rule of Real Account

Debit What Comes In

Credit What Goes Out

Real-Life Example 1

Purchased Furniture for ₹20,000 in cash.

Analysis

Furniture comes into business.

Furniture = Asset

Entry

Furniture A/c Dr.     20,000
      To Cash A/c          20,000

Rule Applied

Furniture comes in.

Debit What Comes In

Furniture A/c Dr.

Cash goes out.

Credit What Goes Out

Cash A/c Cr.

Real-Life Example 2

Sold old machinery for ₹50,000.

Analysis

Machinery goes out.

Cash comes in.

Entry

Cash A/c Dr.          50,000
      To Machinery A/c     50,000

Rule Applied

• Cash comes in → Debit
• Machinery goes out → Credit

Real-Life Example 3

Business purchased a laptop.

Analysis

Laptop comes into business.

Entry

Computer A/c Dr.
      To Cash A/c

Rule:

Debit What Comes In
Credit What Goes Out

Practical TallyPrime Use

Common voucher entries involving Real Accounts:

• Purchase of Furniture
• Purchase of Machinery
• Purchase of Computer
• Sale of Assets
• Cash Deposits
• Cash Withdrawals

Rule 3: Nominal Account

Meaning

Nominal Accounts are related to:

Expenses

• Salary
• Rent
• Electricity
• Telephone
• Advertisement
• Stationery

Losses

• Bad Debts
• Discount Allowed

Income

• Commission Received
• Interest Received
• Rent Received

Gains

• Profit on Sale of Asset

Golden Rule of Nominal Account

Debit All Expenses and Losses

Credit All Incomes and Gains

Real-Life Example 1

Paid office rent ₹8,000.

Analysis

Rent is an expense.

Entry

Rent A/c Dr.         8,000
      To Cash A/c        8,000

Rule Applied

Rent is an expense.

Debit All Expenses and Losses

Rent A/c Dr.

Real-Life Example 2

Paid electricity bill ₹2,500.

Analysis

Electricity is an expense.

Entry

Electricity A/c Dr.   2,500
      To Cash A/c         2,500

Rule:

Debit All Expenses and Losses

Real-Life Example 3

Received commission ₹15,000.

Analysis

Commission is income.

Entry

Cash A/c Dr.            15,000
      To Commission A/c     15,000

Rule Applied

Commission is income.

Credit All Incomes and Gains

Commission A/c Cr.

Real-Life Example 4

Received bank interest ₹2,000.

Entry

Bank A/c Dr.          2,000
      To Interest Received A/c  2,000

Interest is income.

Interest Received A/c Cr.

Quick Summary of Golden Rules

How Golden Rules Work in Daily Business

Scenario 1: Owner Starts Business with Cash

Owner invests ₹1,00,000.

Cash A/c Dr.
     To Capital A/c

Rule

Cash comes in → Real Account → Debit

Capital gives money → Personal Account → Credit

Scenario 2: Purchase Furniture in Cash

Furniture ₹30,000 purchased.

Furniture A/c Dr.
      To Cash A/c

Rule

Furniture comes in → Debit

Cash goes out → Credit

Scenario 3: Pay Office Rent

Rent ₹5,000 paid.

Rent A/c Dr.
      To Cash A/c

Rule

Rent expense → Debit

Cash goes out → Credit

Scenario 4: Receive Payment from Customer

Customer pays ₹20,000.

Cash A/c Dr.
      To Customer A/c

Rule

Cash comes in → Debit

Customer gives money → Credit

Scenario 5: Salary Paid to Employees

Salary ₹25,000 paid.

Salary A/c Dr.
      To Cash A/c

Rule

Salary is expense → Debit

Cash goes out → Credit

Golden Rules and TallyPrime Voucher Entries

Every voucher in TallyPrime ultimately follows the Golden Rules.

Common Examination Questions

Q1. What are the three Golden Rules of Accounting?

Answer

1. Personal Account → Debit the Receiver, Credit the Giver
2. Real Account → Debit What Comes In, Credit What Goes Out
3. Nominal Account → Debit All Expenses and Losses, Credit All Incomes and Gains

Q2. Furniture Purchased for Cash ₹10,000

Entry

Furniture A/c Dr. 10,000
      To Cash A/c      10,000

Rule:

• Furniture comes in → Debit
• Cash goes out → Credit

Q3. Salary Paid ₹5,000

Entry

Salary A/c Dr. 5,000
      To Cash A/c 5,000

Rule:

• Salary is expense → Debit
• Cash goes out → Credit

Important Tips for TallyPrime Users

Tip 1

Always identify the account type first:

• Personal?
• Real?
• Nominal?

Then apply the Golden Rule.

Tip 2

Do not memorize entries blindly.

Understand:

• Who receives?
• Who gives?
• What comes in?
• What goes out?
• Is it an expense?
• Is it an income?

Tip 3

More than 90% of voucher entry mistakes happen because students fail to identify the correct account type.

Final Conclusion

The Golden Rules of Accounting are the backbone of accounting and TallyPrime. Every voucher entry—whether it is a payment, receipt, purchase, sale, salary, rent, or commission—can be recorded correctly if you first identify the account type and then apply the appropriate Golden Rule.

Remember Forever

Master these three rules, and you can confidently record almost every business transaction in TallyPrime.