1) Debit what comes in - credit what goes out. 2) Credit the giver and Debit the Receiver. 3) Credit all income and debit all expenses.
The Golden Rule can be further explained as follows:
It represents increases in liabilities, equity, and revenues, as well as decreases in assets, expenses, and losses. The application of the Golden Rule ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced after each transaction.
3 Different types of accounts in accounting are Real, Personal and Nominal Account. Real account is then classified in two subcategories – Intangible real account, Tangible real account. Also, three different sub-types of Personal account are Natural, Representative and Artificial.
Modern Approach to Accounting
Under the Modern Approach, the accounts are not debited and credited. Hence, the Accounting Equation is used to debit or credit an account. Thus, it is also known as the Accounting Equation Approach. The Basic Accounting Equation is: Assets = Liabilities + Capital (Owner's Equity)
These three golden rules of accounting: debit the receiver and credit the giver; debit what comes in and credit what goes out; and debit expenses and losses credit income and gains, form the bedrock of double-entry bookkeeping. They regulate the entry of financial transactions with precision and consistency.
The seven percent savings rule provides a simple yet powerful guideline—save seven percent of your gross income before any taxes or other deductions come out of your paycheck.
The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.
Contra entry refers to opposing transactions (debit and credit) involving cash and bank accounts. When there is a contra entry, it means that both transactions offset each other. In most cases, contra-entry refers to transfers or adjustments within the same entity.
But running a business "by the numbers" means that your financial reports needs be built on the 3 Rs: reliability, readability, and regularity: Reliable: To get credible and meaningful output, you've got to fix your accounting data and clean up any input errors.
ASSETS=LIABILITIES + EQUITY
or as it's known by its shortened expression which is A=L+E.
The statement must always balance, hence the name. That's because your business has to pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from you, the owner (issuing shareholder equity). Let's look into each section of the balance sheet in more detail.
Bank is an example of personal account and not a real account. All the accounts related to an individual, a firm or a company are termed as personal accounts. Hence, Bank is an example of a personal account.
A ledger is a book or collection of accounts in which accounting transactions are recorded. Each account has: an opening or brought-forward balance; a list of transactions, each recorded as either a debit or credit in separate columns (usually with a counter-entry on another page)
Before we analyse further, we should know the three renowned brilliant principles of bookkeeping: Firstly: Debit what comes in and credit what goes out. Secondly: Debit all expenses and credit all incomes and gains. Thirdly: Debit the Receiver, Credit the giver.
Generally accepted accounting principles (GAAP) comprise a set of accounting rules and procedures used in standardized financial reporting practices.
Typically considered the most important of the financial statements, an income statement shows how much money a company made and spent over a specific period of time.
It means it notes down the income earned through operations and other activities and the expenses incurred and paid to manage the routine activities. Hence, it is also referred to as the income and expense statement.
Liabilities often have the word “payable” in the account title.
Double-entry bookkeeping is an accounting system in which each financial transaction is recorded in two different accounts, hence the term “double-entry.”. Here, each transaction is recorded in at least two accounts as debit or credit.
Rule 1: Debit all expenses and losses, credit all incomes and gains. This golden accounting rule is applicable to nominal accounts.
Accounts receivable (AR) is the term used to describe money owed to a business by its customers for purchases made on credit. It's listed as a current asset on the balance sheet, representing the total value of outstanding invoices for products or services sold but not yet paid for.
The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.