Golden Rules of Accounting: A Beginner’s Guide with Journal Entry Examples

If you’ve ever stared at a stack of receipts and thought, “How do I turn this into a journal entry?”—you’re not alone. Accounting doesn’t have to be confusing, though—all transactions follow 3 golden rules that act as a “cheat code” for recording debits and credits.

These rules aren’t just for accountants: whether you’re a small business owner tracking expenses or a student learning double-entry bookkeeping, they’ll help you record every transaction accurately (no more second-guessing if you debited cash or credited it).

Best of all, we’ll break each rule down with real journal entry examples—the same kind you’d use for everyday business tasks like buying inventory, paying bills, or selling products. By the end, you’ll be able to write journal entries with confidence.

What Are the Golden Rules of Accounting?

The golden rules of accounting are 3 fundamental principles that govern how we record transactions in double-entry bookkeeping. They answer the most common question: “When do I debit an account, and when do I credit it?”

Every account in accounting falls into one of 3 categories, and each category has its own golden rule:

1. Real Accounts: For assets (e.g., cash, machinery, inventory)
2. Personal Accounts: For people/entities you do business with (e.g., customers, suppliers, banks)
3. Nominal Accounts: For income, expenses, gains, and losses (e.g., sales revenue, rent expense, salaries)

Let’s break down each rule with simple definitions and practical journal entry examples—focused on the keyword you care about: journal entry examples.

1. Golden Rule for Real Accounts: “Debit What Comes In, Credit What Goes Out”

What Are Real Accounts?

Real accounts track tangible and intangible assets—things your business owns that have value. Examples include:

• Cash (tangible)
• Inventory (tangible: goods you sell)
• Machinery (tangible: equipment for production)
• Patents (intangible: legal rights to your product)

The Rule in Plain Language

When you receive an asset (e.g., buy a new laptop), you debit that asset account. When you give up an asset (e.g., sell old equipment), you credit that asset account.

Journal Entry Examples for Real Accounts

Let’s use 2 common business scenarios to see how this works.

Example 1: Buying Inventory with Cash ($500)

Suppose you own a bakery and buy $500 worth of flour (inventory) with cash.

• What’s happening? You’re “receiving” inventory (an asset) and “giving up” cash (another asset).
• Debit: Inventory (since it’s “coming in”) → $500
• Credit: Cash (since it’s “going out”) → $500

Journal Entry:

Example 2: Selling Old Machinery for Cash ($2,000)

Your bakery sells a broken mixer (machinery) for $2,000 cash.

• What’s happening? You’re “receiving” cash (asset) and “giving up” machinery (asset).
• Debit: Cash (coming in) → $2,000
• Credit: Machinery (going out) → $2,000

Journal Entry:

Pro Tip: Real accounts are “permanent”—they carry their balance from one accounting period to the next (e.g., your cash balance on December 31 becomes your starting balance on January 1).

2. Golden Rule for Personal Accounts: “Debit the Receiver, Credit the Giver”

What Are Personal Accounts?

Personal accounts track transactions with people or entities—anyone your business owes money to or is owed money by. Examples include:

• Accounts Receivable (customers who owe you money)
• Accounts Payable (suppliers you owe money to)
• Bank (if you have a loan or savings account)
• Owner’s Capital (the owner’s investment in the business)

The Rule in Plain Language

If someone owes you money (they’re a “receiver” of your goods/services), you debit their account. If you owe someone money (they’re a “giver” of goods/services), you credit their account.

Journal Entry Examples for Personal Accounts

These examples mirror everyday business interactions—like selling to customers on credit or paying suppliers.

Example 1: Selling Goods to a Customer on Credit ($800)

A café sells $800 worth of coffee beans to a restaurant (customer: “ABC Restaurant”) on credit (ABC will pay later).

• What’s happening? ABC Restaurant is the “receiver” of your goods (they owe you $800).
• Debit: Accounts Receivable – ABC Restaurant (receiver) → $800
• Credit: Sales Revenue (we’ll explain this in the next rule—for now, know revenue is credited) → $800

Journal Entry:

Example 2: Paying a Supplier You Owe Money To ($300)

You owe $300 to “XYZ Flour Co.” (a supplier) for past inventory purchases. You pay them with cash.

• What’s happening? XYZ Flour Co. is the “giver” (they gave you flour earlier), and you’re repaying them.
• Debit: Accounts Payable – XYZ Flour Co. (reducing what you owe) → $300
• Credit: Cash (going out) → $300

Journal Entry:

Pro Tip: Personal accounts can be “natural persons” (e.g., John Doe, a freelance designer) or “artificial persons” (e.g., ABC Corp, your bank). The rule applies the same way!

3. Golden Rule for Nominal Accounts: “Debit All Expenses and Losses, Credit All Incomes and Gains”

What Are Nominal Accounts?

Nominal accounts track temporary transactions related to income, expenses, gains, and losses. These accounts reset to $0 at the end of each accounting period (e.g., monthly or yearly) because their balances are moved to equity accounts. Examples include:

• Sales Revenue (income)
• Rent Expense (expense)
• Salaries Expense (expense)
• Gain on Sale of Assets (gain)
• Loss on Sale of Assets (loss)

The Rule in Plain Language

If your business has an expense or loss (e.g., paying rent, losing money on a sale), you debit that account. If your business has income or gain (e.g., selling products, making a profit on old equipment), you credit that account.

Journal Entry Examples for Nominal Accounts

These are the most common journal entries for small businesses—tracking day-to-day costs and revenue.

Example 1: Paying Monthly Rent ($1,200)

Your bakery pays $1,200 cash for rent on your storefront.

• What’s happening? Rent is an expense (a loss for the business).
• Debit: Rent Expense (expense → debit) → $1,200
• Credit: Cash (going out → credit) → $1,200

Journal Entry:

Example 2: Earning Interest Income from Your Bank ($50)

Your business bank account earns $50 in interest.

• What’s happening? Interest is income (a gain for the business).
• Debit: Cash (coming in → debit) → $50
• Credit: Interest Income (income → credit) → $50

Journal Entry:

Example 3: Recording Employee Salaries ($3,000)

You pay your bakery staff $3,000 in salaries for the month.

• What’s happening? Salaries are an expense.
• Debit: Salaries Expense → $3,000
• Credit: Cash → $3,000

Journal Entry:

Pro Tip: Nominal accounts are “temporary”—at the end of the month, you’ll transfer their balances to “Retained Earnings” (an equity account) to show how much profit or loss your business made.

How to Apply the Golden Rules: A Step-by-Step Checklist

Now that you know the 3 rules, let’s turn them into a simple process you can use for any transaction. We’ll use a common scenario: “Buying office supplies on credit from ‘Office Depot’ for $150.”

Step 1: Identify the Account Types

• Office Supplies: Real account (it’s an asset you’re receiving).
• Accounts Payable – Office Depot: Personal account (Office Depot is the giver—you owe them money).

Step 2: Apply the Relevant Golden Rules

• Real Account (Office Supplies): “Debit what comes in” → Debit Office Supplies.
• Personal Account (Accounts Payable – Office Depot): “Credit the giver” → Credit Accounts Payable.

Step 3: Write the Journal Entry

Step 4: Verify the Equation Balances

Remember the accounting equation: Assets = Liabilities + Equity

• Assets (Office Supplies) increased by $150.
• Liabilities (Accounts Payable) increased by $150.
• Equity stays the same.
  Equation: $150 (Assets) = $150 (Liabilities) + $0 (Equity) ✅

Common Mistakes to Avoid (With Fixes)

Even with the golden rules, beginners make small errors. Here are the most common ones—and how to fix them:

Mistake 1: Debiting Revenue or Crediting Expenses

Example: You sell goods for $400 cash but debit Sales Revenue and credit Cash.
Why it’s wrong: Nominal rule says “credit incomes” → Sales Revenue should be credited.
Fix: Debit Cash ($400), Credit Sales Revenue ($400).

Mistake 2: Confusing “Receivers” and “Givers” in Personal Accounts

Example: You buy goods from a supplier on credit but debit Accounts Payable.
Why it’s wrong: The supplier is the “giver” → Accounts Payable (what you owe) should be credited.
Fix: Debit Inventory ($X), Credit Accounts Payable ($X).

Mistake 3: Forgetting to Record Both Sides of a Transaction

Example: You pay $200 for utilities but only credit Cash (no debit to Utilities Expense).
Why it’s wrong: Double-entry bookkeeping requires equal debits and credits.
Fix: Debit Utilities Expense ($200), Credit Cash ($200).

Final Takeaway: The Golden Rules = Confident Journal Entries

The golden rules of accounting aren’t just “rules”—they’re a safety net. They take the guesswork out of debits and credits, so you can record transactions quickly and accurately.

To recap:

Next time you need to write a journal entry, ask yourself:

1. What type of accounts am I dealing with?
2. Which golden rule applies?
3. Am I debiting and crediting the right accounts?

Follow this process, and you’ll never second-guess a journal entry again.