Golden rules of accounting

Golden rules of accounting

1. Personal account

Debit the receivers
Credit the givers



2. Real account

Debit those incoming
Credit those outgoing


3. Nominal account

Debit all expenses or loss
Credit all incomes or gains.

All accounting terms are based on above three golden rules.

Classification of accounts

There are two approach for classification of accounts.

1. Traditional Approach ( also called British approach).

This is older version of classification of accounts development in England.



2. Morden Approach ( American Approach)

This is a newer version of classification developed in America.




Notes :  an account is a place or record where financial information about person,things,services. Or activities are noted.

Artificial personal account does not have any physical substance but it. represents an entity , like bank account , ram and company etc.

Representative personal accounts are outstanding salary, prepaid expenses, provision for bad debts, unearned incomes,and accrued incomes.

Above I gives you approach those helpful to you for classification of accounts.

Dual aspect concept

Dual aspect concept

According to this system every business transaction affects at least two accounts in opposite direction.
For example : if the machinery is purchased in the business , machinery is increased where as the cash is decreased.

This basic relationship in accounting is called accounting equation.The equation is the expression of the dual aspect concept.

Accounting process

Accounting process

A. Recording

Records transaction & events in books ( journals). 8 sub division of journal.
1. Cash book
2. Purchase book
3. Sales book
4. Purchase returns book
5. Sales returns book
6. Bills receivable book
7. Bills payable book
8. Journal.

B. Classifying

Posting into ledger. There are 3 type
1. Real
2. Nominal
3. Personal.

C. Summarizing

Preparation of financial statement.
All items are available here all income or expenses.

D . Analysis &  Interpretation.
Here I analysis of results through various technique.  1. Trading account

2. Profile & loss account

3. Balance sheet

That's accounting process all accounting terms based on these process.

Introduction of accounting

The mor den system of accounting is based on the principal of Double Entry system created by an Italian monk fra luca pacioli . ( also called father of accounting).

He developed this system over 500 years ago in 1494 in his book Summa De Arithmetica.

Meaning Of Accounting
Accounting is art of communicating financial information about a business entity to users.

According to ( AICPA) : American institute of certified public post Accountant.
Accounting is the art of recording ,classifying and summarizing in significant manner and in terms of money, transaction and events, which are , in part atleast of financial character and interpretating the results thereof".