There exists a very famous golden rule of double-entry bookkeeping and that famous rule is that for every debit entry there has to be an equal and corresponding credit entry. As a result, there are three rules about recording the financial transaction. Those three basic rules are:
- You have to credit the giver and debit the receiver for an instant when you receive the cash from someone then you have to credit that person and debit the cash.
- The second rule is that you have to debit what is coming in and you have to credit what is going out for instance when you purchase anything for cash then you will be debiting that thing and crediting the cash.
- The third rule is that you have to debit all the losses and expenses. You will be crediting all the incomes and gains for instance when you are paying salary by cheque and the receipt of the interest income by cash then you will be credit in the bank and debit in the salary and credit in interest and debiting cash respectively.
In this article, we are going to discuss what is the golden rule of double-entry bookkeeping.
Debit and crediting is a form of expressing the dual aspects and concepts which directly have any impact on the accounting equation. This dual impact on the financial transactions is to cause an increase or decrease in the accounts that are associated with it. When you have to credit or debit an account it involves you to know the type of the account and how the account is going to be impacted by the financial transactions.
The Double-Entry Accounting Bookkeeping System
The report of the full double-entry accounting system contains all the basic elements of the contemporary world and the double-entry bookkeeping system includes the carrying of balances and keeping them forward from the previous year.
This process also involves recording each entry in the books and having another entry that is going to correspond with the different but corresponding accounts. When you learn the system and become an expert in it then it is going to assist you to flourish in the industry of Banking and Finance. If you want to bloom your career in accounting and finance then this is going to be the best principle for you to learn in the long run.
Uses Of Debit And Credit In The Double-Entry Bookkeeping
When people begin their accounting training they realize about debit and credit and how they are an integral part of the double-entry bookkeeping system. Double-entry bookkeeping has gotten its name because all the things that are entered into the accounts are input.
In this bookkeeping system, all the financial transactions are entered twice. Every single transaction that is debited is also credited from somewhere. The debates are placed on the left whereas the credits are placed on the right. Generally debits increase the assets account and credits decrease the assets accounts but that is not the case for every single entry because exceptional cases always exist.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.