“The Definitive Guide to Accounting Rules: Principles, Golden Rules & Conventions”

Principles, Golden Rules & Conventions: My Passion Bookkeeping

Rules of Accounting: My Passion bookkeeping

1. Introduction

Accounting isn’t just number‑crunching; it’s a system built on clear, consistent rules that ensure every transaction is recorded, classified, and reported accurately. Whether you’re balancing a small‑biz ledger or preparing audited financials for a multinational, understanding these rules is non‑negotiable.

2. Fundamental Accounting Principles

Entity Concept
- Treat the business as a separate “person” from its owners.
- Personal and business transactions must never mix.
Going Concern
- Assume the business will continue indefinitely.
- Assets are recorded at cost, not liquidation value.
Consistency
- Apply the same methods from period to period.
- Changes (e.g., switching depreciation methods) must be disclosed.
Accrual Principle
- Record revenues when earned and expenses when incurred, not necessarily when cash moves.
- Provides a truer picture of performance.
Matching Principle
- Recognize all expenses incurred to generate a given period’s revenues in that same period.
- Key to an accurate Profit & Loss statement.
Conservatism (Prudence)
- When in doubt, understate assets or income and overstate liabilities or expenses.
- Protects stakeholders from overly optimistic reporting.
Materiality
- Only items large enough to influence decisions need separate disclosure.
- Prevents cluttering statements with immaterial minutiae.
Reliability

Record only transactions supported by objective evidence (invoices, contracts).
Ensures users can “verify” the numbers.

3. The “Golden Rules” of Double‑Entry Bookkeeping

These time‑tested maxims guide every debit & credit decision:

Personal Account
- Debit the receiver, Credit the giver.
- Ex: You pay ₹5,000 to Vendor X → Debit “Vendor X” A/C, Credit “Bank” A/C.
Real Account
- Debit what comes in, Credit what goes out.
- Ex: You purchase machinery → Debit “Machinery” A/C, Credit “Cash/Bank” A/C.
Nominal Account
- Debit all expenses and losses, Credit all incomes and gains.
- Ex: You earn ₹2,000 in interest → Debit “Interest Receivable” A/C, Credit “Interest Income” A/C.

4. Modern Conventions & Regulatory Frameworks

GAAP (Generally Accepted Accounting Principles) in the U.S.
IFRS (International Financial Reporting Standards) globally.
Both frameworks embody the principles above but add detailed guidance on revenue recognition, lease accounting, financial instruments, and more.

5. Putting It into Practice

Chart of Accounts Design
- Align with Principle #2 (Going Concern): classify assets/liabilities by liquidity.
Journal Entries & Ledgers
- Always check that total debits = total credits (trial balance).
Adjusting & Closing Entries
- Apply Matching & Accrual principles at period‑end (prepaids, accruals, depreciation).
Financial Reporting

Follow consistency of format and disclosures (notes, accounting policies).

6. Conclusion

Mastering these rules empowers you to maintain accuracy, ensure compliance, and produce transparent financial statements that stakeholders trust. As standards evolve, anchoring your practice in these core rules will keep you agile, whether you’re closing books by hand or on the cloud.

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