Who invented the golden rules of accounting

Golden Rule of Funding

Definition of the golden rule of funding

The Golden Rule of Funding (also as Golden banking rule called) calls for a Maturity congruence between the raising of capital and subsequent capital repayment (financing) and the use of funds (investment).

This means: long-term assets (e.g. buildings, machines) should also be financed in the long term (with equity or long-term loans), otherwise financing problems can arise over the term.

Explanation of the Golden Rule of Funding

To justify this requirement, reference is made to the example of the congruence of deadlines for the golden balance sheet rule.

Golden Funding Rule formulas

The formulas for the Golden Funding Rule are:

(Long-term assets / long-term capital) <= 1

Long-term assets (numerator of the formula) are fixed assets, long-term capital (denominator of the formula) is made up of equity and long-term debt capital (e.g. bonds, bank loans, pension provisions).

(Short-term assets / short-term capital)> = 1

The short-term assets (numerator of the formula) include the current assets, the short-term capital (denominator of the formula) primarily includes delivery liabilities (open supplier invoices), other liabilities (e.g. from sales tax) and short-term bank loans.

Relationship between the two formulas

The two formulas are mirror images of each other: if the first formula is satisfied, i.e. the result is <= 1, the second formula is also automatically satisfied.

This can also be seen in the example shown below.

Example: Golden Funding Rule

Example: Calculating the Golden Funding Rule

As of December 31, 2010, the following balance sheet existed for a company:

The trade payables ("open supplier invoices") represent the short-term liabilities in this case, while pension provisions and bank loans are long-term in the example.

Calculation of the golden funding rule

Long-term assets / long-term capital = 840 / (500 + 200 + 200) = 0.93 (rounded) (i.e. <= 1).

Short-term assets / short-term capital = (60 + 40 + 60) / 100 = 1.6 (i.e.> = 1).

This means that the golden rule of funding has been met.