Accounting's Four Golden Rules: A Complete Guide to Financial Keeping records

 At the heart of financial accounting are the four golden rules of accounting, which provide a framework for accurately and systematically tracking a company's financial transactions. This comprehensive guide tackles these rules and demystifies the world of financial records.

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1. The Golden Rule of Wealth: Trust what comes in, trust what goes out. Assets are the lifeblood of any business and include everything from cash and inventory to real estate and equipment. According to the first golden rule, assets become a liability the moment you join a company. Conversely, assets are credited when they expire. These rules form the basis for accurately recording changes in the value and composition of a company's assets.

2. The Golden Rule of Debt: Credit what comes in and debit what goes out. Debt represents a company's obligations and liabilities, and the second golden rule states that when a debt increases (incurs), it is credited. Conversely, when a liability decreases (extinguishes), it is recorded as a debit. This regulation ensures that a company's obligations are accurately reflected in its financial records.

3. The Golden Rule of Income: Credit all income and debit all expenses. Revenue and expenses are at the heart of a company's financial health. The third golden rule simplifies recording your income and expenses. All sources of income are credited and all expenses are debited. This rule lays the foundation for tracking a company's profitability by tracking its revenue sources and cost structure.

4. The Golden Rule of Stocks: Deposits and Withdrawals Equity represents ownership of a company. The fourth golden rule focuses on the capital account and states that contributions are credited and withdrawals are debited. This rule accurately represents changes in capital that reflect owners' investments and withdrawals from the company.

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