All You Need To Know About The Golden Rules of Accounting

By siliconindia  |  Tuesday, 23 March 2021, 12:56:26 PM IST

All You Need To Know About The Golden Rules of Accounting

Golden rules of Accounting signify the necessary regulations that monitor the recording of day-to-day financial transactions of businesses. The understanding of types of accounting lays a foundation to understand the golden rules of accounting better. The account classification applies to all kinds of general ledgers; every account falls in either of the broad categories given below.

The three types of accounts are given below:

  • A Personal Account is a general ledger account connected to all persons like individuals, firms, and associations. A creditor Account would be an excellent example of a Personal Account.
  • A Real Account is a general ledger account related to assets and liabilities except for people accounts. Such accounts don’t close at the end of the year but are carried forward. A good example of a Real Account would be a Bank Account.
  • A Nominal Account is a general ledger account that pertains to all incomes, expenses, gains, and losses. An Interest Account would be a good example of a Nominal Account.

Now that types of accounts are addressed let’s jump on to the golden rules of accounting.

For particular accounts, there are a few sets of Golden Rules; the three Golden Rules of Accounting. The treatment of each transaction conducted by the businesses is defined by the Golden rules.

GSTIN and its Importance

GSTIN: Goods and Services Tax Identification Number is a 15 digit number provided in a certificate of registration to an applicant. The number is received once the application for the grant of GST registration is approved. Hence, the number is provided to the applicant on the common portal on the completion of the process.

The format of GSTIN is PAN-based and specific to each state. The first two digits indicate the code number of the particular state as every state has a unique two-digit code of its own. To help you out here, below is the list of states with its code.

The next ten digits of the GSTIN are the PAN of the taxpayer. This means an individual registering under GST is required to have a PAN without fail. The thirteenth digit of the GSTIN represents the number of registrations the person or entity holds. This is an alphanumeric number that starts from 1 to 9 and further from A to Z, denoting various aspects completing the 15 digit GSTIN. This completes the GST number format..

Every business entity needs to obtain a unique GSTIN to collect tax and avail input credit. However, registration under GST is not only specific to taxation. It means that a single registration is required for CGST, SGST/UTGST. Also, business entities that have branches in multiple states are required to take GSTIN likewise.

Some Final Thoughts

All transactions of an entity should be accounted for. The entity must pass journal entries to account for the transactions that will later summarize into ledgers. To apply the golden rules, one must ascertain the type of account and maintain journal entries based on the golden rules of accounting. These rules play a significant role in the systematic presentation of financial statements. It eases the task of recording expenses and incomes, facilitating better management of the business.

The Assets, Liabilities, Owners Equity, Revenue, and Expenses are covered in accounting's golden rules to manage the finances with no hassles.

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