Whether you run a small start‑up or manage a large corporate branch in Dubai, your financial records tell the story of your business. In a world of international trade and rapidly changing regulation, keeping those records accurate is more than a formality, it is a legal obligation.
In the United Arab Emirates (UAE) the Commercial Companies Law requires companies to follow International Financial Reporting Standards (IFRS) when preparing financial statements and determining distributable profits. The golden rules of accounting form the foundation of the double‑entry bookkeeping system that underlies IFRS, GAAP and other accounting frameworks.
This guide breaks down the 3 golden rules of accounting, provides clear examples, compares them to modern rules, and explains how they apply in the context of Dubai’s regulatory environment.
Accounting Basics: Debits, Credits, and Types of Accounts
Every accounting transaction affects at least two accounts: one account is debited, and another is credited. According to Patriot Software, a debit is an entry made on the left side of an account and generally increases asset or expense accounts and decreases equity, liability or revenue accounts. A credit is an entry on the right side and increases equity, liability and revenue accounts while decreasing assets and expenses. Understanding the nature of accounts is key:
- Assets: Resources a business owns (e.g., cash, equipment, vehicles).
- Liabilities: Amounts owed to others, such as loans or accounts payable.
- Equity: The owner’s residual interest, assets minus liabilities.
- Income/Revenue: Money earned from sales or services.
- Expenses: Costs of operations such as wages and supplies.
In the traditional system, accounts are grouped into real, personal and nominal categories. Each category follows its own golden rule, which we’ll explore next.
The 3 Golden Rules of Accounting Explained
1. Personal Account Rule – Debit the receiver, credit the giver
Personal accounts relate to individuals, organizations or entities. When your business receives something from another party, the receiver’s account is debited, and the giver’s account is credited. This rule ensures fairness and accuracy in recording transactions involving people or organizations.
Example (Dubai context): Imagine a Dubai‑based trading firm pays an Emirati supplier AED 41 500 for raw materials. The supplier is the receiver (they get the money), so the firm debits the Supplier Account. Cash is going out of the business, so it credits its Cash Account.
The journal entry would look like:
| Date | Account | Debit (AED) | Credit (AED) |
|---|---|---|---|
| 01‑01‑2026 | Supplier Account | 41 500 | – |
| To Cash Account | – | 41 500 | |
| (Being payment made to supplier) |
This practice ensures that people or organizations you owe money to are properly credited, while the value you give up (cash) is recorded as a credit.
2. Real Account Rule – Debit what comes in, credit what goes out
Real accounts include tangible and intangible assets such as cash, machinery, buildings and patents. When an asset enters the business, the real account is debited; when it leaves, the account is credited.
Example: A manufacturing company in Dubai purchases a machine costing AED 830 000 and pays in cash. The Machinery Account (asset) is debited because a machine comes in. The Cash Account is credited because money leaves the business.
| Date | Account | Debit (AED) | Credit (AED) |
|---|---|---|---|
| 10‑01‑2026 | Machinery Account | 830 000 | – |
| To Cash Account | – | 830 000 | |
| (Being machinery purchased for cash) |
This rule helps businesses track how assets move in and out, ensuring accurate asset valuations and preventing omissions.
3. Nominal Account Rule – Debit all expenses and losses, credit all incomes and gains
Nominal accounts record expenses, losses, incomes and gains. When your business incurs a cost or loss, you debit the nominal account; when it earns income or gains, you credit it. Patriot Software notes that nominal accounts close at the end of each period and include revenue, expense and gain/loss accounts.
Example: Suppose a service company in Dubai earns revenue of AED 83 000 in cash. Cash is coming in, so the Cash Account (real) is debited. The Revenue Account (nominal) is credited because it records income:
| Date | Account | Debit (AED) | Credit (AED) |
|---|---|---|---|
| 20‑01‑2026 | Cash Account | 83 000 | – |
| To Revenue Account | – | 83 000 | |
| (Being revenue earned in cash) |
Conversely, if the business spends AED 3 000 on office supplies, you would debit the Supplies (Expense) Account and credit Cash.
Summary of the 3 Rules
| Rule | Applies to | When to Debit | When to Credit |
|---|---|---|---|
| Personal account rule | Individuals or organizations | Debit the receiver | Credit the giver |
| Real account rule | Tangible and intangible assets | Debit what comes in | Credit what goes out |
| Nominal account rule | Expenses, losses, incomes, gains | Debit expenses and losses | Credit incomes and gains |
These rules ensure that every transaction balances, making it easier to spot errors and maintain transparent records.
Modern Rules of Accounting: Expanding Beyond the Golden Rules
Traditional accounting focuses on three account types. However, American or modern rules of accounting classify all accounts into six categories: Asset, Liability, Capital, Revenue, Expense and Drawings. In this approach, each account has specific debit and credit rules:
| Account Type | Increase | Decrease |
|---|---|---|
| Asset | Debit | Credit |
| Liability | Credit | Debit |
| Capital | Credit | Debit |
| Revenue | Credit | Debit |
| Expense | Debit | Credit |
| Drawings | Debit | Credit |
Accounting Capital suggests memorising “CRADLE” (Capital, Revenue, Asset, Drawings, Liability, Expense) to recall the modern categories. While the golden rules remain valid, modern rules provide a more nuanced framework, particularly useful when a business adopts IFRS or other complex standards. In practice, both systems complement each other: the golden rules help decide which side of an account to use, while modern rules help classify accounts correctly before applying debits and credits.
Why the Golden Rules Still Matter
Even with modern accounting frameworks, the golden rules remain relevant. Tally Solutions notes that these rules are “the backbone of trustworthy financial management,” helping businesses spot errors, prepare audit‑ready records, and align with GAAP. By ensuring every debit has an equal credit, companies can quickly identify missing transactions or typos. A well‑maintained system also streamlines audits, internal or external, because records are structured, consistent and easy to trace. Following the golden rules aligns with IFRS requirements in the UAE, promoting transparency and consistency.
Bookkeeping and Compliance Requirements in Dubai
Under UAE law, businesses must maintain accurate bookkeeping and comply with IFRS when preparing financial statements. Key requirements include:
- International accounting standards: Companies must follow IFRS for interim and annual accounts. IFRS promotes consistency, transparency and comparability across borders.
- Mandatory record retention: Businesses must keep books of account for at least five years (under the Commercial Companies Law) and seven years (under the Corporate Tax Law).
- Annual financial statements: Companies are required to prepare a balance sheet, income statement and cash flow statement annually.
- Annual audit: Many companies, particularly those generating revenue exceeding AED 50 million or operating in free zones, must have their accounts audited by independent auditors.
These obligations highlight the importance of accurate record‑keeping. Failure to adhere can lead to penalties, tax issues or reputational damage. Applying the golden rules properly helps ensure your books are complete and ready for inspection.
Applying the Golden Rules in Real Life: Dubai‑focused Scenarios
Purchasing goods on credit
A Dubai retailer buys inventory worth AED 100 000 on credit. Under the personal account rule, the supplier (creditor) is the giver, and the retailer is the receiver. The entry is:
- Debit Inventory (Asset) AED 100 000: Because goods come in (real account rule).
- Credit Accounts Payable (Liability) AED 100 000: Because the supplier is giving goods (personal account rule).
Paying a utility bill
The company’s electricity bill for AED 5 000 arrives. According to the nominal account rule, expenses are debited. The Cash (or Bank) Account is credited since money goes out:
- Debit Utilities Expense AED 5 000.
- Credit Cash/Bank AED 5 000.
Receiving interest income
A business earns AED 2 000 in interest on its savings. Under the nominal account rule, incomes are credited. Cash comes in, so it is debited:
- Debit Cash/Bank AED 2 000.
- Credit Interest Income AED 2 000.
Capital introduction by the owner
When the owner invests AED 200 000 into the business, you debit the Cash Account (asset increases) and credit the Capital Account (equity increases). This follows both the real account rule (cash comes in) and the modern rule that capital increases are credited.
Depreciation entry (non‑cash expense)
Suppose your company records AED 10 000 depreciation on machinery. Depreciation is a non‑cash expense, so it is debited; accumulated depreciation (contra‑asset) is credited. Such entries ensure that even non‑cash expenses comply with the golden rules.
Seasonal and Local Considerations for Dubai Businesses
Dubai’s business landscape is unique. Many firms experience seasonality, hospitality peaks during winter tourism, retail surges around Ramadan and Eid, and construction often slows during the hottest summer months. When planning cash flow and expense recognition, consider the timing of major events.
For example, businesses may pay bonuses during Eid or incur higher marketing expenses before the Dubai Shopping Festival. By applying the golden rules consistently across seasons, you can match revenues and expenses correctly and improve financial forecasting. Moreover, VAT introduced in the UAE in 2018 means that purchases and sales must be recorded with the correct tax treatment; accurate debits and credits ensure that VAT liability is calculated correctly.
Pro Tips for Mastering the Golden Rules
- Memorise the rules using acronyms. The acronym “DRE” (Debit the Receiver, debit what comes in, debit expenses/losses) and “CGO” (Credit the Giver, credit what goes out, credit incomes/gains) can help recall which side to use.
- Classify accounts before recording. Identify whether an account is real, personal or nominal (or one of the six modern categories) before applying the rules. Correct classification prevents errors and streamlines journal entries.
- Use accounting software. Tools like Tally, QuickBooks or Xero automate double‑entry bookkeeping. They apply golden rules behind the scenes, reducing manual errors.
- Reconcile regularly. Regular bank reconciliations and ledger reviews help spot mismatches early.
- Stay compliant with UAE law. Understand IFRS requirements and the Federal Law on Commercial Companies. Consider consulting professional accountants to ensure your books meet audit standards.
Partner with Bestax for Expert Accounting in Dubai
Mastering the golden rules of accounting is essential, but applying them consistently and complying with UAE regulations can be challenging. Whether you’re setting up a new business in Dubai, expanding operations or preparing for an audit, professional guidance can save time and money. Bestax, a leading accounting and tax consultancy, offers comprehensive services. Their experts understand local laws and industry‑specific needs. Reach out to Bestax today for a consultation and ensure your accounts are accurate, compliant and ready for growth.
FAQs about the Golden Rules of Accounting
What are the 3 golden rules of accounting?
The three rules are (1) Debit the receiver and credit the giver, which applies to personal accounts; (2) Debit what comes in and credit what goes out, which applies to real accounts; and (3) Debit expenses and losses and credit income and gains, which applies to nominal accounts.
How are the golden rules different from modern rules?
Golden rules classify accounts as real, personal or nominal and specify how to debit/credit them. Modern (American) rules classify accounts into six categories, Asset, Liability, Capital, Revenue, Expense and Drawings, and define whether increases or decreases are debited or credited. Modern rules are more detailed, but the golden rules remain the conceptual foundation.
Why are the golden rules important for businesses in Dubai?
UAE Federal Law No. 2 of 2015 requires companies to follow international accounting standards like IFRS. Proper application of the golden rules ensures that transactions are recorded accurately, making financial statements transparent and audit‑ready. Accurate records also help businesses calculate taxable profits under the UAE Corporate Tax Law.
Can the golden rules be applied using modern software?
Yes. Most accounting software packages incorporate the double‑entry system and enforce the golden rules automatically. Users enter transactions, select the relevant accounts and amounts, and the software handles the debits and credits.
Do the golden rules apply to VAT transactions in the UAE?
Yes. When recording a sale with VAT, you would debit the buyer’s account (for the full amount including VAT) and credit your sales and VAT liability accounts. For purchases, you debit the asset or expense and VAT recoverable account and credit the supplier. Proper application ensures your VAT returns are correct.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
