ACCOUNTING

DEFINITION OF ACCOUNTING:
Accounting states that it includes recording, summarizing, reporting and analyzing financial data.

Golden Rules of Accounting

The Golden Rules of Accounting
1. Debit The Receiver, Credit The Giver

This principle is used in the case of personal accounts. When a person gives something to
the organization, it becomes an inflow and therefore the person must be credit in the books of
accounts. The converse of this is also true, which is why the receiver needs to be debited.

2. Debit What Comes In, Credit What Goes Out

This principle is applied in case of real accounts. Real accounts involve machinery, land and
building etc. They have a debit balance by default. Thus when you debit what comes in, you
are adding to the existing account balance. This is exactly what needs to be done. Similarly
when you credit what goes out, you are reducing the account balance when a tangible asset
goes out of the organization.

3. Debit All Expenses And Losses, Credit All Incomes And Gains

This rule is applied when the account in question is a nominal account. The capital of the
company is a liability. Therefore it has a default credit balance. When you credit all incomes
and gains, you increase the capital and by debiting expenses and losses, you decrease the
capital. This is exactly what needs to be done for the system to stay in balance.

Types of Accounts
All accounts within the organization can be split into three types. An account can be of one and only
one of the following type and not more. Here are the various types of accounts.

 Personal: Personal accounts make most intuitive sense. We keep a track of all the transactions
that we have undertaken with a particular person in them. We all maintain personal accounts
like the money we owe our friends, the grocer and so on.

 Real: Real accounts are accounts which have been created to account for tangible things.
Accounts such as land and building, machinery a/c etc are called real accounts. Although they
are not living beings, we still transact with such entities. Records of such transactions are kept in
real accounts.

 Nominal: Nominal accounts are a special category of accounts. While the other accounts can
hold balance and carry it forward, nominal account are automatically reset to zero as soon as
the time period is over. Their balance is carried forward to other accounts and the books for that
period are closed. Examples of such accounts are Profit a/c, depreciation a/c etc.
 What is 'Accounts Payable - AP'

 Accounts payable (AP) is an accounting entry that represents a company's

obligation to pay off a short-term debt to its creditors or suppliers.

 It appears on the balance sheet under the current liabilities.

 Another common usage of AP refers to a business department or division that is

responsible for making payments owed by the company to suppliers and other
creditors.

Accounts payable are a type of short-term debt. Other short-term business

\ debts include expenses such as payroll costs, business income taxes, and
short-term loans. In contrast, long-term debts include lease payments,
retirement benefits, individual notes payable and a range of other debts repaid
over a long term.