MICKEY STARTS A

TEXTILE BUSINESS
Lets help him with Accounting

MICKEYS STORY

Mickey decides to start a business.

He has Rs. 5 lakhs with him.

He takes a loan for another Rs.5 Lakhs from the

Bank.

MICKEYS STORY
He procures the necessary permission from the
government and does the following:
buys a shop
buys the necessary furniture
gets electricity connection
employs workers.

and

MICKEYS STORY
His business involves the following
activities:
buying clothes
from Donald
wholesaler,

,a

packing it using a packing machine

and
selling packed clothes
to retailers
like Goofy

THE ELEMENTS MICKEY WILL COME

ACROSS WHILE DOING BUSINESS
CASH
loan from BANK
BUILDING
FURNITURE
MACHINERY

REPAIRS to building, furniture or machinery

ELECTRICITY BILL

THE ELEMENTS MICKEY WILL COME

ACROSS WHILE DOING BUSINESS
SALARY TO WORKERS
clothes in wholesale
packed clothes

called PURCHASES
called SALES

payment to DONALD
DISCOUNT RECEIVED from Donald
payment from GOOFY
DISCOUNT ALLOWED to Goofy

THE ELEMENTS MICKEY WILL COME

ACROSS WHILE DOING BUSINESS

MICKEY HIMSELF
(Although he is the owner, he
is a separate person with
regard to his business.)
The cash he brings in will be called CAPITAL
and the business has to pay this amount
back to him.
Any amount he takes from the cash belonging
to the business, for his personal use will be
called DRAWINGS

CLASSIFICATION OF THE ELEMENTS

All the elements in the business can be

classified into the following:
1. Real and Artificial persons:

2. Non living things:

CLASSIFICATION OF THE ELEMENTS

3. Expenses : > REPAIRS
>
BILL
> SALARY TO
4. Losses

: > DISCOUNT ALLOWED to

5. Incomes : > (Elements like Interest Received

from Bank on the amount deposited)

(No items mentioned in the current
scenario fall under this class)

6. Gains

: > DISCOUNT RECEIVED from

THE DIFFERENT ACCOUNTS

Once the elements are classified according to
their nature, they can be classified into the
following types of Accounts:
1. Real and Artificial
persons

PERSONAL ACCOUNT

2. Non living things

REAL ACCOUNT

3. Expenses, Losses,
Incomes and Gains

NOMINAL ACCOUNT

THE DIFFERENT ACCOUNTS

1. PERSONAL ACCOUNT:

Personal A/c consists of the following:

.These elements either RECEIVE

MONEY &/or THINGS or GIVE MONEY &/or
THINGS.
.They take the role of RECEIVER or GIVER
.

gives money to the business as loan.

THE DIFFERENT ACCOUNTS

gives

to the business in the beginning.

gives/sells

If

gives/sells the

gives

If

to

, for which he receives

for credit, he will be paid later.

when receiving/buying

buys/receives the

from

on credit, he will pay later.

THE DIFFERENT ACCOUNTS

2. REAL ACCOUNT:
Real A/c consists of the following:

.These elements either COME INTO THE

BUSINESS or GO OUT OF THE BUSINESS.

for
and

and
are bought by
whereby they come into the business
goes out of the business.

THE DIFFERENT ACCOUNTS

When

are bought from

for

come into the business

and

goes out of the business.

If the purchase is done for credit,

comes into the business

and
will go out of the business only at a later date.

THE DIFFERENT ACCOUNTS

When

are sold to

for

goes out of business

and

comes into the business.

If the sales is done on credit,

goes out of the business

and
will come into the business only at a later date.

THE DIFFERENT ACCOUNTS

3. NOMINAL ACCOUNT:
Nominal A/c consists of the following:

>Repairs to building, furniture and machinery

>
Bill
>Salary to
>Discount allowed to
>Discount received from

THE DIFFERENT ACCOUNTS

Repairs,
Bill and Salary to
expenses incurred by the business.

are

Discount allowed to
is a loss for the
business as it involves the business
forgoing a part of the amount that is due
from its debtor.

THE DIFFERENT ACCOUNTS

Discount received from
is a gain for the
business because a creditor of the business
is forgoing a part of the amount due to him.
Expenses and Losses are similar in nature
and Incomes and Gains are similar in nature.
In nominal account, the elemsnts are either
EXPENSES AND LOSSES or INCOMES
AND GAINS

THE GOLDEN RULES OF ACCOUNTING

Every transaction has a DEBIT aspect and a CREDIT
aspect. According to the Golden Rules of Accounting:

In PERSONAL A/c : DEBIT the RECEIVER &

CREDIT the GIVER

In REAL A/c

: DEBIT what COMES IN &

CREDIT what GOES OUT

In NOMINAL A/c : DEBIT all EXPENSES AND LOSSES &

CREDIT all INCOMES AND GAINS

TRANSACTIONS

(1) 0n 1/1/2015 Mickey invests Rs.5

lakhs in the business
Elements : Cash and Mickey
(Since Mickey is the owner, the
cash he contributes will be called
Capital. It is treated as Personal A/c)
Cash and Capital
Cash A/c
: Real A/c Comes in Debit
Capital A/c : Personal A/c Giver - Credit
Journal entry:
Date

1/1

Particulars

Cash A/c
Dr.
To Capital A/c
(Being cash brought in by
the owner)

L.F. Dr. (Rs.)

Cr. (Rs.)

5,00,000
5,00,000

(2) On 4/1/2015 Mickey takes a loan

of Rs.5 Lakhs from the bank

Elements: Cash and Bank

Cash A/c : Real A/c Comes in Debit

Bank A/c : Personal A/c Giver - Credit
Journal entry:
Date

Particulars

4/1 Cash A/c

Dr.
To Bank A/c
(Being loan taken from
bank )

L.F.

Dr. (Rs.)

Cr. (Rs.)

5,00,000
5,00,000

(3) On 7/1/2015 Mickey buys a shop

building worth Rs.2 Lakhs

Elements: Building and Cash

Building A/c : Real A/c Comes in Debit

Cash A/c
: Real A/c Goes out Credit
Journal entry:
Date

Particulars

7/1 Building A/c

Dr.
To Cash A/c
(Being building
bought for
Rs. 2 lakhs )

L.F. Dr. (Rs.)

Cr. (Rs.)

2,00,000
2,00,000

(4) On 10/1/2015 Mickey buys

furniture worth Rs.10,000

Elements: Furniture and Cash

Furniture A/c: Real A/c Comes in Debit

Cash A/c
: Real A/c Goes out Credit
Journal entry:
Date

Particulars

10/1 Furniture A/c

Dr.
To Cash A/c
(Being furniture
bought)

L.F. Dr. (Rs.) Cr. (Rs.)

10,000
10,000

(5) On 13/1/2015 Mickey buys a

packing machine worth Rs.75,000

Elements: Machine and Cash

Machine A/c : Real A/c Comes in Debit

Cash A/c
: Real A/c Goes out Credit
Journal entry:
Date

13/1

Particulars

Machinery A/c Dr.

To Cash A/c
(Being Machinery
bought)

L.F. Dr. (Rs.)

Cr.(Rs.)

75,000
75,000

(6) On 16/1/2015 Mickey buys cloth from

Donald for Rs.7500 and pays in cash

Elements: Cloth and Cash

(Cloth here refers to the item which Mickey
uses in his trade. Hence it is called Purchases.)
Purchases and Cash

Purchases A/c: Real A/c Comes in Debit

Cash A/c
: Real A/c Goes out Credit

Journal entry:

Date
(Rs.)

16/1

Particulars

Purchases A/c
Dr.
To Cash A/c
(Being cash purchase )

L.F. Dr. (Rs.) Cr.

7500
7500

(7) On 19/1/2015 Mickey incurs Rs.500 as

repair charges for the packing machinery
Elements: Repair for Machinery and Cash
Repairs for Machinery A/c
: Nominal A/c Expense Debit
Cash A/c : Real A/c Goes out Credit
Journal entry:
Date

Particulars

19/1

Repairs for Machinery A/c Dr.

To Cash A/c
(Being repairs for Machinery)

L.F. Dr. (Rs.) Cr.(Rs.)

500
500

(8) On 22/1/2015 Mickey sells packed

cloth worth Rs.10,000 to Goofy for cash
Elements: Packed cloth and Cash
(Packed cloth here refers to the item in which
Mickey trades. Hence it is called Sales.)
Sales and Cash
Cash A/c : Real A/c Comes in Debit
Sales A/c : Real A/c Goes out Credit
Journal entry:
Date

Particulars

22/1 Cash A/c

Dr.
To Sales A/c
(Being cash sales)

L.F.

Dr. (Rs.)

Cr. (Rs.)

10,000
10,000

(9) On 23/1/2015 Mickey buys cloth

worth 10,000 from Donald for credit

Elements: Purchases and Credit

(Here the purchase is done for credit. No cash
is paid. The Giver is credited for the amount
due to him.)
Purchases and Donald
Purchases A/c: Real A/c Comes in Debit
Donald A/c
: Personal A/c Giver Credit
Journal entry :
Date

23/1

Particulars

Purchases A/c
Dr.
To Donald A/c
(Being credit purchases)

L.F.

Dr. (Rs.)

Cr. (Rs.)

10,000
10,000

(10) On 25/1/2015 Mickey sells packed

cloth worth Rs.15,000 to Goofy on credit
Elements: Sales and Credit
(Here the sales is done for credit. No cash is
received. The Receiver is debited for the
amount due from him.)
Sales and Goofy
Goofy A/c : Personal A/c Receiver Debit
Sales A/c : Real A/c Goes out - Credit
Journal entry
Date
25/1

Particulars
Goofy A/c
To Sales A/c
(Being credit sales)

L.F.
Dr.

Dr. (Rs.)
15,000

Cr. (Rs.)
15,000

(11) On 28/1/2015 Mickey pays Donald Rs.8,000

and Donald allows Mickey a Discount of Rs.2,000
Elements: Cash, Discount Received and Donald

( Here Mickey receives a discount from Donald. The amount

Mickey need not pay is a gain for Mickeys business.)

Donald A/c
: Personal A/c Receiver Debit
Cash A/c
: Real A/c Goes out Credit
Discount Received A/c : Nominal A/c Gain Credit

Journal entry:
Date
28/1

Particulars
Donald A/c
Dr.
To Cash A/c
To Discount Received A/c
(Being payment to creditor made
and discount received)

L.F.

Dr. (Rs.)

Cr. (Rs.)

10,000
8,000
2,000

(12) On 31/1/2015 Mickey receives Rs.14,000 from

Goofy in full settlement of the amount due from him

Elements: Cash, Discount Allowed and Goofy

(Here Mickeys allows Goofy a discount. The amount Goofy
will not pay because of the discount is a loss to Mickeys
business.)

Cash A/c
: Real A/c Comes in Debit
Discount Allowed A/c : Nominal A/c Loss Debit
Goofy A/c
: Personal A/c Giver - Credit

Journal entry:
Date

31/1

Particulars

Cash A/c
Dr.
Discount Allowed A/c
Dr.
To Goofy A/c
(Being payment received from
debtor and discount allowed)

L.F.

Dr. (Rs.)

Cr. (Rs.)

14,000
1,000
15,000

(13) On 2/2/2015 Mickey pays

Rs.3,000 as salary to workers

Elements: Salary to workers and Cash

Salary A/c: Nominal A/c Expense Debit

Cash A/c : Real A/c Goes out - Credit
Journal entry:
Date

Particulars

2/2

Salary A/c
To Cash A/c
(Being salary paid)

L.F.

Dr.

Dr. (Rs.)

Cr. (Rs.)

3,000
3,000

(14) On 2/2/2015 Mickey pays Rs.5000 as

electricity bill charges for the last month
Elements: Electricity Bill and Cash
Electricity Charges A/c
: Nominal A/c Expenses Debit
Cash A/c : Real A/c Goes out Credit
Journal entry:
Date

2/2

Particulars

Electricity charges A/c

To Cash A/c
(Being electricity charges
paid)

L.F.

Dr.

Dr. (Rs.)

Cr. (Rs.)

5,000
5,000

(15) 0n 4/2/2015 Mickey takes Rs.3,000

to buy a cycle for his personal use

Elements: Cash and Mickey

(Here Mickey withdraws cash for his personal use. Such
withdrawals are called Drawings. It is treated as
Personal A/c )
Cash and Drawings

Drawings A/c : Personal A/c Receiver Debit

Cash A/c
: Real A/c Goes out Credit

Journal entry:
Date

4/2

Particulars

Drawings A/c
Dr.
To Cash A/c
(Being drawings made by
the owner )

L.F.

Dr. (Rs.)

Cr. (Rs.)

3,000
3,000

Now that weve helped Mickey learn the

basics of Accounting, and Journalizing,
lets hope that he does well in his
business

ADIOS AMIGOS !!