There are many different accounting rules that govern the balance sheet of a business. The first rule is known as the “Nominal Account Rule” and relates to debiting expenses and credits for income and gains. Nominal accounts are the ones related to a business’s income or expenses, while personal accounts relate to a person, firm, association, or other entity. Examples of personal accounts include a salary, a drawing account, and other types of transactions.
The other type of accounting rule involves proration of revenue evenly over a predefined period. When this rule applies to revenue, the percentage of the remaining revenue is prorated over a series of periods. In a four-week period, for example, 25% of the revenue would be recognized at the end of each schedule. It can also apply to revenue recognition schedules. In addition to proration, accounting rules must be set up so that they do not overlap or create problems.
The Golden Rules of Accounting are guidelines that govern day-to-day transactions. The rules apply to both general ledger and personal accounts. Personal accounts, for instance, refer to all the accounts that relate to a person. Personal accounts have a certain form that is specific to each individual. If a person donates to a charity, it is considered an inflow. It is important to debit the person to whom the donation is made. Otherwise, the donation is not recorded.
Another important accounting rule concerns the proper recording of transactions. All accounting transactions should be recorded using the double entry method. When recording transactions, the debit and credit amounts should match each other. Accounting rules require that the books be kept at the head office of the business for at least 6 years. Failure to comply with this requirement may result in hefty fines of up to Rs. 25000, or even 2% of the total value of international transactions. If this rule is broken, the company may be fined.
The third rule concerns revenue recognition. The Revenue Recognition Schedule specifies the amount of time that revenue should be recognized. The Revenue Recognition Schedule can be assigned to invoices manually entered in the Transaction window, or automatically imported into Receivables via AutoInvoice. The Revenue Recognition Schedule changes depending on the value passed through AutoInvoice and the value specified manually. Therefore, it is important to follow the golden accounting rules to ensure that your accounting is in compliance with regulations.
There are also special accounting rules. Some of these rules are governed by trade customs, governmental regulations, or tax laws. These rules apply only to certain types of companies, such as commercial banks, life insurance companies, and holding companies. The terminology used in these accounting rules is different for each type of company. If you’re not sure, contact a CPA to learn more about these accounting rules. You’ll be glad you did!