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And, in return, helping the companys decision-makers to make wise decisions.

In todays business world, everyone who owns a business must thoroughly understandaccounting.

Having a solid knowledge ofaccountingmakes the individual realize the companys performance.

The Golden Rules ofAccounting are the guidelines for accurately recording journal entries or transactions systematically or chronologically.

Debit the account if you receive something.

Credit the account if you donate.

Scenario 1:You buy items from Company XYZ worth USD 2000.

You must credit Company XYZ and debit your Purchase Account in your records.

You must credit Company XYZ because they are the giver supplying the goods.

The receivers Purchase Account must then be debited.

Scenario 2:Say you paid Company XYZ for office supplies in Cash for USD 1500 in this example.

You must credit your (the givers) Cash Account and debit the recipient.

These accounts do not end their fiscal year.

Their remaining balances are instead carried over to the upcomingaccountingquarter.

Credit the account when the amount leaves your company.

For example, a payment made.

If your company incurs expenses or suffers losses, debit the account using nominal accounts.

If your company has to record revenue or profit, credit the account.

For example, for income or gain, lets say you sell Company XYZ goods valued at USD 17000.

Your Sales Account must debit the expense and credit the income.

You must debit the payment (the USD 13000 purchase) and credit the income to register the transaction.

Credits and debits are documented for each transaction inaccounting.

The foundational ideas ofaccountingdepend on debits and credits.

And then, the general entry would be Cash A/C to Capital A/C.

You will debit what comes in and credit what goes out because both are real accounts.

Therefore, Machinery to Cash A/C would be the overall entry.

As a result, Smiths account would be credited, and the Purchases account will be debited.

Example 4: Salaries paid USD 5000

Two accountsSalaries A/C and Bank A/Care involved in this case.

Salary A/C to the Bank would be the standard entry in this case.

Accounting Terms Glossary

Below are some of the basicaccountingtermsused in the above examples.

Entityis defined as an economic unit that differentiates theaccountingof certain transactions from other entities.

The main types of entities are partnership, corporation, and sole proprietorship.

Transaction: A transaction is an occasion when some value is exchanged between two or more entities.

It could involve purchasing, receiving money, paying a creditor, etc.

It could be a credit or cash transaction.

Credit: Abbreviated as Cr, credits areaccountingentries that lower assets or raise liabilities.

A credit is the granting of an advance or the advance of goods, services, or money.

Expenses: A businesss expenditures are the cost of the assets or services used during anaccountingperiod.

Lossis the difference between a periods expenses and associated revenues.

For instance, money or items stolen and lost or a fire accident.

Gain: A gain is defined as an increase in the value of an asset.

Journal:It is a book of original entries where every transactional information is recorded as it occurs.

It draws attention to the accounts that need to be credited and those that need to be debited.

Journalizing is the process of entering the transactions in a journal.

Summing Up

To record financial transactions in ledgers, all three golden rules are used.

And doing so enables the company to comprehend where they stand in terms of economic assessments today.