Golden Rules of Accounting: 3 Rules With Examples and Journal Entries

The golden rules of accounting help you understand which account to debit and which account to credit when recording a business transaction.

What Are the Golden Rules of Accounting?

The golden rules of accounting are three simple rules used to decide which account should be debited and which should be credited.

Every business transaction has two sides. For example, when you buy a computer for your shop and pay by bank, the computer comes into the business while money goes out of the bank.

The three golden rules are:

Account Type	Golden Rule
Personal Account	Debit the receiver, credit the giver
Real Account	Debit what comes in, credit what goes out
Nominal Account	Debit all expenses and losses, credit all incomes and gains

You can also refer to the ICAI accounting study material for the traditional classification of accounts and golden rules.

Types of Accounts in Accounting

Before applying the golden rules, you need to know which type of account you are dealing with.

1. Personal Account

Personal accounts are related to people, businesses, banks and other entities.

• Customer account
• Supplier account
• Bank account
• Company account
• Capital account
• Drawings account

Rule: Debit the receiver, credit the giver.

Example: You sell goods worth ₹30,000 to Ramesh on credit.

Account	Dr / Cr	Amount
Ramesh’s A/c	Dr	₹30,000
Sales A/c	Cr	₹30,000

Remember: If a person or business receives value, debit the receiver. If they give value, credit the giver.

2. Real Account

Real accounts are related to the assets owned by a business.

• Cash
• Furniture
• Machinery
• Vehicles
• Computers
• Buildings
• Goodwill
• Software and other intangible assets

Rule: Debit what comes in, credit what goes out.

For example, when you purchase a computer, the computer comes into the business, so the Computer Account is debited.

Account	Dr / Cr	Amount
Computer A/c	Dr	₹45,000
Cash A/c	Cr	₹45,000

• Computer comes in → Debit Computer A/c
• Cash goes out → Credit Cash A/c

3. Nominal Account

Nominal accounts record the income, expenses, gains and losses of a business.

Examples of expenses:

• Rent
• Salary
• Electricity
• Transport
• Advertising

Examples of income and gains:

• Sales
• Commission received
• Interest received
• Profit on sale of an asset

Rule: Debit all expenses and losses, credit all incomes and gains.

For example, when you pay shop rent, the Rent Account is debited because it is an expense.

Account	Dr / Cr	Amount
Rent A/c	Dr	₹18,000
Bank A/c	Cr	₹18,000

Rent is an expense, so it is debited.

The 3 Golden Rules of Accounting

Rule 1: Debit the Receiver, Credit the Giver

This rule applies to personal accounts.
When a person or business receives something, debit their account. When they give something, credit their account.

Rule 2: Debit What Comes In, Credit What Goes Out

This rule applies to real accounts.
When an asset comes into the business, debit it. When an asset goes out, credit it.

Rule 3: Debit All Expenses and Losses, Credit All Incomes and Gains

This rule applies to nominal accounts.
Expenses and losses are debited, while income and gains are credited.

Golden Rules of Accounting With Journal Entries

Here are some common transactions that small businesses deal with every day.

1. Started a business with ₹5,00,000 cash

Account	Dr / Cr	Amount
Cash A/c	Dr	₹5,00,000
Capital A/c	Cr	₹5,00,000

Cash comes into the business, so the Cash Account is debited. Capital represents the amount brought in by the owner.

2. Purchased goods worth ₹80,000 on credit

Account	Dr / Cr	Amount
Purchases A/c	Dr	₹80,000
Mehta Traders A/c	Cr	₹80,000

Purchases are debited, and the supplier’s account is credited.

3. Made a cash sale of ₹22,000

Account	Dr / Cr	Amount
Cash A/c	Dr	₹22,000
Sales A/c	Cr	₹22,000

Cash comes into the business, so the Cash Account is debited. Sales income is credited.

4. Paid staff salary of ₹35,000 by bank

Account	Dr / Cr	Amount
Salary A/c	Dr	₹35,000
Bank A/c	Cr	₹35,000

Salary is an expense, so it is debited. Money goes out of the bank, so the Bank Account is credited.

5. Bought a delivery van for ₹6,00,000 by cheque

Account	Dr / Cr	Amount
Delivery Van A/c	Dr	₹6,00,000
Bank A/c	Cr	₹6,00,000

The vehicle comes into the business, so it is debited. The bank balance goes down, so the Bank Account is credited.

A Simple Example From a Retail Shop

Let’s see how these rules work during a normal business day. Suppose Sunil runs a retail clothing shop

Transaction	Journal Entry
Bought clothes worth ₹40,000 in cash	Dr Purchases ₹40,000 / Cr Cash ₹40,000
Sold clothes worth ₹8,000 for cash	Dr Cash ₹8,000 / Cr Sales ₹8,000
Sold clothes worth ₹12,000 on credit	Dr Customer ₹12,000 / Cr Sales ₹12,000
Paid shop rent of ₹10,000	Dr Rent ₹10,000 / Cr Cash ₹10,000
Paid electricity bill of ₹2,500	Dr Electricity ₹2,500 / Cr Cash ₹2,500
Received ₹12,000 from the customer through UPI	Dr Bank ₹12,000 / Cr Customer ₹12,000
Took ₹3,000 from the business for personal use	Dr Drawings ₹3,000 / Cr Cash ₹3,000

The important thing is that every transaction has two sides. Once you understand what came in, what went out, who received or gave money, and whether it was income or an expense, identifying debit and credit becomes easier. 

How do the Golden Rules Apply to GST?

GST transactions can look confusing at first because a single sale or purchase can involve multiple accounts.

GST on a Sale

Suppose you make a sale of ₹1,00,000 plus 18% GST. The customer pays ₹1,18,000.

Account	Dr / Cr	Amount
Customer A/c	Dr	₹1,18,000
Sales A/c	Cr	₹1,00,000
Output CGST A/c	Cr	₹9,000
Output SGST A/c	Cr	₹9,000

The ₹18,000 GST collected is not sales income. It is tax collected on behalf of the government.

GST on a Purchase

Suppose you purchase goods worth ₹50,000 plus 18% GST.

Account	Dr / Cr	Amount
Purchases A/c	Dr	₹50,000
Input CGST A/c	Dr	₹4,500
Input SGST A/c	Dr	₹4,500
Supplier A/c	Cr	₹59,000

Where eligible, the GST paid on purchases can be available as input tax credit. This is why eligible input GST should be recorded separately instead of simply adding it to the purchase value. Using GST billing software can make it easier to record GST separately and keep track of input and output tax.

Traditional vs Modern Accounting Rules

You may also come across a different way of explaining debit and credit.

Traditional approach	Modern approach
Personal, Real and Nominal accounts	Assets, Liabilities, Equity, Income and Expenses
Three golden rules	Debit and credit based on the type and movement of accounts
Commonly taught in traditional accounting education	Commonly used in modern accounting systems and software

The terminology is different, but both approaches help you arrive at the debit and credit entry.

If you are using accounting software, you may see the modern account categories more often.

Common Mistakes When Applying the Golden Rules

• Treating every payment as an expense: Buying a computer or machine is not the same as paying electricity or rent. An asset purchase and a business expense are recorded differently.
• Treating drawings as a business expense: If the owner takes ₹10,000 from the business for personal use, it is a drawing, not a business expense.
• Mixing personal and business transactions: Try to keep personal spending separate from business transactions. It makes your books much easier to understand.
• Recording credit sales only when payment is received: A credit sale is recorded when the sale happens, not only when the customer pays.
• Creating duplicate ledgers: If you create separate ledgers for the same customer or supplier, their outstanding balance can become difficult to track.
• Adding eligible input GST to the purchase cost: Where input tax credit is available, keep the input GST separate from the purchase value.

Checkout – 5 Smart Accounting Habits Every Growing Business Should Adopt

How Accounting Software Handles These Rules

You don’t always have to manually write every debit and credit entry.

When you create a transaction in accounting software, the software records the corresponding accounts in the background.

What you do	Accounts recorded
Create a sales invoice	Customer Dr / Sales Cr / Output GST Cr
Record payment received	Cash or Bank Dr / Customer Cr
Enter a purchase	Purchase Dr / Input GST Dr / Supplier Cr
Record an expense	Expense Dr / Cash or Bank Cr
Record a sales return	Sales Return Dr / Customer Cr

This is one reason correct account and transaction details matter when setting up your business in accounting software.

For example, when you record a sale, the software can update the customer’s balance, sales figures and applicable GST records based on the transaction.

With Vyapar, you can create invoices, record purchases and expenses, manage customer and supplier balances, track payments and view business reports from the same app. The accounting entries are handled in the background, so you don’t need to manually write every journal entry for routine transactions.

Checkout – What is Accounting Software, Features and Benefits

Conclusion

The golden rules of accounting become much easier once you stop trying to memorise every entry. With regular business transactions like sales, purchases, expenses, payments and GST, this logic becomes easier to follow.

And if you use accounting software such as Vyapar, you don’t need to manually write every debit and credit entry. You can focus on recording the transaction correctly while the accounting is handled in the background.