Bookkeeping is the process of recording, organizing, and maintaining financial transactions of a business. It involves tasks such as recording sales, purchases, receipts, and payments systematically. Bookkeeping provides the foundation for preparing financial statements and helps businesses track their financial health, manage cash flow, and make informed decisions.
The golden rules of accounting refer to three fundamental principles in bookkeeping:
1. Debit what comes in, credit what goes out:
This means that increases in assets are recorded as debits, while decreases in assets are recorded as credits.
2. Debit the receiver, credit the giver:
This rule applies to transactions involving liabilities and owner’s equity. When a business receives something, it debits the receiving account and credits the giving account.
3. Debit all expenses and losses, credit all incomes and gains:
Expenses and losses are recorded as debits, while incomes and gains are recorded as credits.