The 3 Golden Rules of Accounting: Simple Explanation with Examples

Accounting begins with understanding a few core principles. Among the most important are the 3 golden rules of accounting, which form the foundation of every financial transaction.

In this blog, we’ll explain each rule using simple language, relatable examples, and easy-to-follow tables.

What Are the 3 Golden Rules of Accounting?

The golden rules of accounting help us decide which account to debit and which to credit in any transaction. These rules are based on the type of account involved.

There are three main types of accounts:

1. Personal Account
2. Real Account
3. Nominal Account

Let’s look at each rule one by one.

1: Personal Account

Rule: Debit the Receiver, Credit the Giver

What It Means:

When a person or organization gives or receives something, we apply this rule.

Example:

• You pay Rs. 1,000 to your friend (Friend = Giver)
  • Credit: Friend’s account (Giver)
  • Debit: Cash (Receiver)

2: Real Account

Rule: Debit What Comes In, Credit What Goes Out

What It Means:

This rule is used for physical assets or anything of value like cash, furniture, or goods.

Example:

• You buy furniture for Rs. 5,000
  • Debit: Furniture (Comes In)
  • Credit: Cash (Goes Out)

3: Nominal Account

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

What It Means:

This rule deals with all income and expense accounts.

Example:

• You pay rent of Rs. 2,000

  • Debit: Rent Expense (Expense)
  • Credit: Cash (Paid out)

  

Why Are These Rules Important?

• They make accounting systematic and consistent
• Help track business transactions correctly
• Are used in all manual and digital bookkeeping
• Lay the foundation for journal entries and ledgers
• Make financial statements accurate and easy to audit

Common Mistakes Students Make and How to Avoid Them

• Confusing account types: Use a chart to revise Personal, Real, and Nominal accounts
• Forgetting which side to debit/credit: Use real-life examples like pocket money, bills, or buying a phone
• Not practicing enough: Solve 2–3 journal entry questions daily to build speed and confidence

Fun Tip to Remember the Rules

Use the acronym "PRN":

• P – Personal Account → Debit the Receiver, Credit the Giver
• R – Real Account → Debit What Comes In, Credit What Goes Out
• N – Nominal Account → Debit Expenses/Losses, Credit Incomes/Gains

Turn this into a memory game or flashcards!

How Students Can Learn These Easily

• Use flashcards or memory tricks (like "DR = Comes In")
• Practice with real-life examples like pocket money, spending, and gifts
• Join beginner accounting courses like Account Eazy by Interval Learning

Understanding the accounting 3 golden rules is a great first step into the world of finance and bookkeeping. These simple rules are used every day in homes, businesses, and classrooms.

If your child is beginning their accounting journey, or you want to make learning easier at home, check out Interval Learning’s online Account Eazy course. 

Explore Interval Learning's Account Eazy Course today!