Golden rules in accounting are fundamental principles that guide the recording of financial transactions and the preparation of financial statements. These rules are the cornerstone of double-entry bookkeeping, a system where every transaction affects at least two accounts: one account is debited (increased) while another account is credited (decreased) by an equal amount.

The three golden rules in accounting are…

1. Debit what comes in, credit what goes out – This rule applies to assets and expenses. When an asset or an expense increases, it is debited; when it decreases, it is credited.

2. Credit what comes in, debit what goes out – This rule applies to liabilities, equity, and revenue. When a liability, equity, or revenue account increases, it is credited; when it decreases, it is debited.

3. Debit all expenses and losses, credit all incomes and gains – This rule indicates that expenses and losses are recorded by debiting them. In contrast, incomes and gains are recorded by crediting them.

These golden rules ensure that the accounting equation (Assets = Liabilities + Equity) remains balanced after every transaction and that the financial statements accurately reflect a business’s financial position and performance.